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The details of the new Government backed mortgage scheme were announced in the budget last Wednesday.
Boris Johnson has been talking about his “Generation Buy” scheme for some time. With lenders having virtually removed all 95% mortgages from their lending lists during the Covid crisis, it has become almost impossible for those with only a 5% deposit to purchase a property.
The pandemic has hit young people and their economic prospects very hard. First-time buyers in particular, with no equity to carry forward in a house move, and facing the most stringent affordability tests on mortgage applications, are finding it increasingly difficult to meet lender’s requirements.
This initiative is designed to persuade lenders to provide mortgages to first-time buyers and existing home owners who only have a 5% deposit. The Government will offer lenders the guarantee they require to provide mortgages covering the remaining 95 percent.
Despite the scheme being available to all customers, it is thought to be most keenly anticipated by first-time buyers. The scheme will be available for properties up to £600,000. Rightmove calculates that the national average asking price of a first-time buyer property is £200,692. Based on this, a five per cent deposit would be £10,035, compared to a 10 per cent deposit of £20,692. The Stamp Duty holiday is also a great help to buyers.
The majority of mortgage lenders will currently let you borrow up to 4.5 times your annual salary. The average salary in the UK is circa £29,000 pa; which leaves many falling short of the necessary funds.
The scheme will be very useful to those on higher than average salaries, but without savings. Boris hopes that the affordability criteria from lenders will be adjusted going forward due to this new initiative. House prices in regional areas, rather than cites, where prices are more in line with earnings, will probably be best served by the new opportunity.
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