95% Mortgages

95% Mortgages

According to the Office for National Statistics (ONS), the number of 25 to 34 year olds who own their own home almost halved between 1991 and 2016, falling from 67 per cent to 34 per cent. The same study also showed that for those aged 35 to 44, homeownership fell from 78 per cent to 59 per cent.

But does this mean that home ownership has to be out of reach for most young people? There are various schemes that can help people to get onto the housing ladder:

Shared Ownership

This is where you purchase a property but Co-own it with a housing association. You can buy a percentage of the property (often starting at 50%) and pay rent on the remaining amount. You can buy anything from 25% to 75% of the property but you’re restricted to specific ones. Mortgage offers with a 5% deposit are thin on the ground, with hundreds of lenders pulling these types of deals following the coronavirus crisis. However, with Shared Ownership, it isn’t impossible to find these types of deals.

Family Assisted Mortgages

There are various versions of this type of product on the market but, with one of them, the property buyer has to put down a 5% deposit but they will also need a family member who has another 10% of the property value that they can put into a savings account with the lender. These savings cannot be touched for 5 years as they act as a form of security for the lender. The family member will get their money back at the end of the five years, plus interest, so long as the mortgage repayments have been paid on time.

Joint Borrower, Sole Proprietor Mortgage

This may be suitable for first-time buyers who are struggling with affordability for their own 95% mortgage, as the deal can take a family member’s income into account.

Recent Developments

Boris Johnson recently announced that he would like to introduce measures that would allow 95% mortgages to return to the market. His latest announcement received a lot of attention from young people across the country. During his appearance at the virtual Conservative party conference on 6 October, the prime minister revealed his plans to transform “generation rent” into “generation buy” by making mortgages more accessible to first-time buyers.

Under the plans, which are yet to be confirmed, first-time buyers would be given the chance to take out long-term fixed-rate mortgages of up to 95% of the value of a home, meaning that the purchaser would only need to find a 5% deposit.

There is a sting in the tail though since a move to 5% deposits is likely to require a change to current regulations introduced in the wake of the 2008 crash to take risk out of the financial system. This is likely to delay moves to get these products to market.