UK chancellor Rishi Sunak is gearing up to unveil a new mortgage scheme at his 3 March Budget that will help first-time buyers with small deposits get on the property ladder.
The Treasury said that the government will offer incentives to lenders, bringing back 95% mortgages which have "virtually disappeared" during the COVID-19 pandemic.
There were only 8 low-deposit products available nationwide in January 2021, the Treasury said.
Under the plans, buyers will pay just 5% deposits to buy homes worth up to £600,000 ($836,000) and will offer lenders the guarantee to provide mortgages covering the remaining 95%.
Sunak, who said that he will use the Budget to level with people about the impact of the crisis on the UK economy, is set to announce the scheme on Wednesday.
It will be available to lenders from April this year and will be subject to the usual affordability checks.
According to the Treasury, the scheme will support the property market, protect jobs and "doubling down on the prime minister’s promise to turn generation rent into generation buy.
Prime minister Boris Johnson said: “I want generation rent to become generation buy and these 95% mortgage guarantees help to deliver this promise.
“Young people shouldn’t feel excluded from the chance of owning their own home and now it will be easier than ever to get onto the property ladder.”
The scheme, which is part of the chancellor's Plan for Jobs, is aimed at boosting the property market and increasing the appetite of lenders by supporting the sector "to offer high loan-to-value lending to creditworthy customers across the UK."
“Owning a home is a dream for millions across the UK and we want to help as many people as possible. Saving up for a big deposit can often be difficult, and the pandemic has meant there are fewer low deposit mortgages available," Sunak said.
Lenders will have the options to purchase a government guarantee that compensates them for a portion of their losses in the event of foreclosure, under the scheme.
The chancellor added: “So by giving lenders the option of a government guarantee on 95% mortgages, many more products will become available, helping people to achieve their dream and get on the housing ladder.”
"All lenders under the scheme will also offer mortgages fixed for at least five years as part of their range of products, providing options for consumers with smaller deposits who want the security and predictability of a mortgage with a fixed rate over a longer term," the Treasury said.
Sunak also warned on the scale of damage caused by the coronavirus crisis. He suggested that he could use the Budget to repair the public finance.
He told the Financial Times that there are “enormous strains” and that the UK is “exposed” to changes in the currently low interest rates, with a rise of 1% worth £25bn a year to servicing the debt in the wake of vast spending to prop up Britain's economy.
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