Questions and answers: banks align to offer mortgage guarantee offers

Options for first-time buyers opened up this week as Main Street banks launched a wave of government-backed mortgages for those with a deposit of just 5% and Nationwide announced a deal that allows first-time buyers to borrow up to 5.5 times their income.

In the March budget, Chancellor Rishi Sunak announced a program to help homebuyers secure a home purchase with a 95% mortgage, promising the government would support participating lenders for the top portion of the loan. to 80% in the event of a fault.

Higher LTV deals all but disappeared during the pandemic, with lenders fearing the impact of the economic downturn on profits and house prices.

Although the government program has triggered the revival of subprime mortgages in the market, rising house prices have raised concerns that fewer people will be able to afford them. On Wednesday, the Bureau of National Statistics said housing price growth rose to 8.6% in February, the highest rate in six years.

What offers are available for the 95% mortgage guarantee system?

As of this week, just over 40 offers are available on the program. HSBC, Santander, Barclays, Lloyds, Halifax, Bank of Scotland and NatWest – large lenders representing well over half of the UK mortgage market – are among the participating lenders, and Virgin Money is expected to join them in a few months.

Mortgages are available on properties worth up to £ 600,000, and movers as well as first-time buyers can apply. Buyers of second homes and rental housing – as well as loans on new homes – will not be eligible.

The rates are significantly more expensive than the low LTV offers, with fixed rates for the five-year offers at around 4 percent. Defaqto, the financial information provider, said the “best buy” among guarantee products was a two-year 3.9% fixed rate from NatWest, with no product fees. The best five-year solution was outside of the program, he said, indicating a 3.89% rate from the Coventry Building Society with a fee of £ 999.

Santander is the only lender to offer a three-year fixed rate deal under this program, with an interest rate of 3.99% and no fees.

Will borrowers be able to afford the high rates of these offers?

For borrowers, there is no practical difference between a 95% mortgage that is inside or outside the plan, but the stimulus effect of the policy is already showing in the larger availability of higher LTV transactions in the market.

Moneysupermarket, the comparison site, said it saw a 71% increase in first-time mortgage applications from 95% in the seven days leading up to Monday.

Andrew Montlake, managing director of mortgage broker Coreco, said the mortgage guarantee system will boost the market throughout the year. “Even when the stamp duty holiday ends, we expect the mortgage guarantee system to continue to support the demand of first-time buyers, which will spill over into the market and maintain a certain level of transactions,” he said. he declared.

However, while the 95 percent regime opened the door for those with small deposits, many borrowers would still fail to meet the affordability requirements that lenders place on such transactions – inside or out. outside the system.

Aneisha Beveridge, research director at estate agent Hamptons International, estimated that only 50% of first-time buyers in Britain would meet the household income level required to service a mortgage under the scheme. an interest rate of 4.04% for a five-year contract. In London, this percentage fell to 20%.

Affordability improves dramatically at lower LTVs. With an LTV of 80%, using an interest rate of 2.09%, 75% of first-time buyers would meet the requirement, Beveridge said.

That meant Help to Buy, the government’s equity loan program, remained a more feasible option for many first-time buyers, she said. “Buyers with a 5 percent down payment can access a 5-year fixed rate of 2.29 percent (currently through Skipton Building Society). This means that 70% of first-time buyers would meet the income requirement of £ 34,000 per year. “

What about agreements from lenders who have not joined the program?

Lenders such as Bank of Ireland, Accord – the branch of the Yorkshire Building Society that works through brokers – and Leeds Building Society, offer 95% of transactions outside the program. Leeds this week announced two new two-year fixed rate 95% LTV offers, one at 3.8% with a product fee of £ 499 and a free alternative at 3.95%.

Other lenders are taking a different approach: Nationwide is yet to offer a 95% deal, but said its so-called “Helping Hand” deal, launched this week, would increase borrower affordability by 20%.

How does the Nationwide Agreement work?

Starting next week, the construction company will offer a 90% LTV mortgage for first-time buyers who want to borrow up to 5.5 times their income, up from 4.5 times the standard maximum normally available.

Henry Jordan, national director of mortgages, said the lender has set aside £ 1 billion for new mortgages. “We believe we can make the most of this £ 1billion to provide better support to first-time buyers who probably need it most. [it] to climb the ladder.

The Nationwide offer is offered at a fixed rate for 5 or 10 years and is available only to applicants with a minimum income of £ 31,000 or £ 50,000 for co-applicants. Its five-year fixed rates start at 3.34% with a £ 500 discount and free assessment.

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