NATWEST and Barclays have revealed the rates of their 5% deposit mortgages ahead of a new scheme launch.
On April 19, the government’s mortgage guarantee scheme is launching to help first-time buyers with small deposits to buy their own home.
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Lenders pulled almost all of these types of mortgage deals, which are favoured by first-time buyers, when the coronavirus crisis hit last year.
In the Budget last month, Chancellor Rishi Sunak then unveiled the new scheme, which will see the government back the mortgages.
This will encourage lenders to offer the small deposit deals, which are typically seen as riskier during times of economic uncertainty.
NatWest and sister bank RBS have signed up to the scheme, and they’ll offer the 5% deposit deals to both first-time buyers and existing homeowners.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa – It’s a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there’s a maximum limit of £3,000 which is paid to your solicitor when you move. These accounts have now closed to new applicants but those who already hold one have until November 2029 to use it.
Help to Buy equity loan – The Government will lend you up to 20% of the home’s value – or 40% in London – after you’ve put down a 5% deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa – This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25% on top.
Shared ownership – Co-owning with a housing association means you can buy a part of the property 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 guarantee scheme – The scheme opens to new 95% mortgages from April 19 2021. Applicants can buy their first home with a 5% deposit, it’s eligible for homes up to £600,000.
From Monday, it’ll offer a two-year fixed rate at a 3.90% interest rate and a five-year fixed deal at 4.04%.
Meanwhile, Barclays is launching a two-year fix at a pricier 3.99% rate and a five-year fix at a 4.09% rate under the scheme.
Neither of the mortgages come with any product fees.
The NatWest deals will be available to both employees and self-employed workers, while Barclays is yet to confirm if its mortgages are.
HSBC, Lloyds Banking Group and Santander have also signed up to the scheme, but they’re yet to reveal the rates they’ll offer.
Meanwhile, TSB and Nationwide don’t currently plan to take part.
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The new deals come with higher interest rates than other 5% deposit loans already available, but these require your family to put down money.
For example, Barclays’ Springboard mortgage offers a five-year fix for a 5% deposit mortgage at a 3.45% rate with no fee.
It requires your family to transfer 10% of the property purchase price into a savings account as security on your mortgage.
While Family Building Society offers a 3.64% rate for a similar mortgage and a £599 fee, but it also requires your family to provide security.
The average two-year fix for a 5% deposit deal currently comes with a 4.19% rate, while the average rate for five-year fixes is at 4.2%.
Since March 1, the number of 5% deposit mortgages have increased from just five to 67 deals today, according to comparison site Moneyfacts.
However, they’re still down from 391 in March 2020.
Eleanor Williams, finance expert of Moneyfacts, told The Sun it’s “fantastic news” to see small deposit home loans return to the market.
She added: “This should provide not only more choice for [first-time buyers], but also increase competition in the sector which may hopefully lead to more competitive rates.
“However, the right product for a borrower’s circumstances comes down to more than just the initial rate alone.
“It is important that the overall true cost of a deal is compared, taking into account such as the fee and any incentives that may be available.”
Miguel Sard, of NatWest said: “We welcome the government’s new mortgage guarantee scheme to give further support to those with smaller deposits.
“A government backed scheme will help segments of the market for whom home ownership has felt far out of reach in recent months.”
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In the meantime, a number of other lenders have already launched their own 5% deposit loans without government support.
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