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How to buy a home with 5% deposit.

First time buyers must act when new low deposit mortgage schemes are introduced

Tuesday 20 October, 2020

If you are a first-time buyer struggling to find a suitable mortgage product and raise more than a 5% deposit read this article now.

The government has announced their intention to help ‘Generation Buy’. Call our mortgage brokers for more information.

First time buyer mortgages

Vishal Gulrajani, Financial Adviser in North London, Cheshunt and Goff’s Oak reviews how first-time buyers can get on the housing ladder, as Boris Johnson announces ministers are working on a mortgage scheme to encourage long-term fixed mortgage deals with just a 5% mortgage deposit.  

First time buyers should call their Thomas Oliver mortgage broker on 01707 872000 for guidance and direction

First time buyers must be ready to take advantage of any new mortgage scheme that the government introduce, as this may be the best chance of securing a mortgage before the stamp duty holiday expires in March 2021. 

To get ready for the new mortgage scheme contact the Thomas Oliver mortgage broking team. We will explain what you need to do so you are ready to sign up for the ‘Generation Buy’ mortgage scheme and our mortgage consultants will work with you to create a mortgage plan that is personalised to you.

Current mortgage environment difficult for first-time buyers

Many of you will be aware how difficult it currently is to obtain a mortgage if you have a low deposit. In fact, it is virtually impossible with a 5% deposit and near impossible if you have a 10% deposit. Unfortunately, the stamp duty holiday only made things even worse. This is because it applies to home movers and landlords so house prices have risen as demand has increased, making small deposits relatively smaller. 

First time buyers pleased with the re-introduction of 5% deposits for a first home

However, a lot of potential buyers especially the young generation of first-time buyers would have been ecstatic with the government announcement in early October that Boris Johnson plans to bring back 5% deposit schemes. Owning a property is a big part of the British culture and is a goal a lot of young people want to achieve, so the new government announcement in what Johnson calls ‘generation buy’ was well received. 

‘Generation Buy’ scheme could be similar to ‘help to buy’

Now over the last week we have seen a large number of enquiries regarding 5% deposit schemes, but unfortunately there is nothing set in stone and ministers are working on a scheme to get first time buyers back in the market. However, we anticipate that this could be similar to the ‘help to buy’ mortgage guarantee scheme that ended in 2016. As a result, we expect the negotiations and government element of the proposal being agreed by the banks and government. In this respect, as far as the client is concerned it could be just a normal 5% mortgage. This is good news but just like the old scheme it will have some caveats. 

What could be the caveats of a 5% deposit scheme for first-time buyers?

Firstly, we expect lending to be restricted to 4 or 4.5 times multiple of your income, secondly this will only be applicable to really high credit scored individuals and there will be a rigorous assessment of your bank statements, especially if you are self-employed. 

How can your Thomas Oliver mortgage broker prepare you for this new mortgage scheme?

Vishal Gulrajani, Financial Adviser in North London, Cheshunt and Goff’s Oak said: ‘In preparation for the new mortgage scheme I would suggest all potential buyers get in contact with their Thomas Oliver mortgage adviser on 01707 872000, so you can act quickly once an announcement is made. Our mortgage broking team can give an indication of your mortgage budget and tips on how to make sure your credit is immaculate. The government announcement is nothing but good news. Nevertheless, I am slightly concerned as to how the scheme will be implemented. Mortgage lenders are currently concerned to lend with even 15% deposit levels. The details of the new scheme are still under review, but it could be that the mortgage guarantee scheme would work with the government backing 10% of the mortgage, so the mortgage lenders are effectively lending at 85%. However, even if this does happen another issue is the interest rate and monthly payments that clients have to pay. This proposal is good in principal but if the mortgage payments end up being astronomical it will have little or no impact and could cause more defaults and disruption.’

Vishal Gulrajani, Financial Adviser in North London, Hertfordshire, Essex continued: ‘I think I can speak for all of us when I say it will be interesting to see how any new mortgage scheme will encourage ‘Generation Buy’ to purchase a home, and I look forward to seeing what products will be available. One thing that is imperative is that potential buyers get prepared and get everything in order because if the scheme does work and it is good then products could be limited. Please remember that our Thomas Oliver mortgage advisors make sure our clients are ahead of the game.’

Local client mortgage case studies 

Below are some client case study examples of mortgage rates and payments currently available as at 16/10/20.  Please note that these are only examples and mortgage rates and terms may be different when you apply.

Mortgage rates example in Harlow

One bed flat Harlow – 140,000k, 15% deposit = 21,000k and mortgage amount is 119,000k. Based on a 40-year term with a current 2-year fixed rate of 2.85%, monthly mortgage payments would be £415.78 (£999 product fee which can be added to the loan).

Mortgage rates example in Cheshunt & Hertford

Two bed flat Cheshunt and Hertford – 240,000k, 15% deposit = 36,000k and mortgage amount is 204,000k. Based on a 40-year term with a current 2-year fixed rate of 2.85%, monthly mortgage payments would be £712.76 (£999 product fee which can be added to the loan).

Mortgage rates example in Enfield

One bed flat enfield – 200,000k, 15% deposit = 30,000k and mortgage amount is 170,000k. Based on a 40-year term with a current 2-year fixed rate of 2.85%, monthly mortgage payments would be £593.97 (£999 product fee which can be added to the loan).

In Summary…

Contact your local mortgage broker today on 01707 872000 for personalised mortgage advice

Act today. If you have a 5% deposit and want to purchase a property call our qualified mortgage brokers so you are ready to sign up for the new mortgage scheme when it’s announced.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up the mortgage repayments.

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