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95% mortgages will keep the UK residential market alive

The Government’s scheme to support 95% mortgages will keep the residential market active after the withdrawal of the Stamp Duty holiday on 30 June, says Heather Powell.

The Help to Buy scheme only supports first time buyers buying a new home. To keep the housing market alive buyers need to be able to buy ‘second hand’ housing. Families moving to larger homes and retirees downsizing all need buyers.

It is not only the current homeowners who benefit from an active housing market. A significant fall in activity in this, the largest element of the housing market, impacts on many businesses. Estate agents, surveyors, conveyancers, furniture and home furnishing retailers, their supply chains, as well as local builders all depend on an active housing market. These businesses all contribute in turn to their local economy, providing jobs and generating money that is spent on services and in shops, restaurants and leisure venues.

Anyone buying a family home can apply for a 95% mortgage, but it is first time buyers who are expected to be the major beneficiaries of the Government’s guarantee scheme due to the well detailed problems of saving for a deposit while paying rent.

The ability to access a 95% mortgage almost completely disappeared in 2020. The Government’s scheme, which provides a guarantee for up to 15% of a loan, was designed to increase the number of mortgage providers in this market and has already had a positive impact.

The number of 95% mortgages has increased from just three a couple of months ago to over 60 today. Not many Government initiatives have such immediate, positive results.

Interest rates are settling at just under 4%, with rates fixed for up to five years. While these rates are higher than those available to buyers with a larger deposit, fixing the rate for five years does allow buyers to budget for confidence over this period, and for many buyers the mortgage repayments remain lower than the rent they are currently paying.

The generous upper limit of £600,000 is more than double the average house price of £254,606. It is sufficient to ensure support is available to almost all home buyers in the UK and should prevent a ‘cliff edge’ in all but the most affluent areas.

Lawrence Henry, a Partner at Statons Estate Agency, said: “We saw the impact of this policy change immediately.

“The certainty that a mortgage is available has meant that demand from buyers has increased every month and we are confident that this will continue for the next 12 months and beyond.”

This policy has addressed a critical issue in the housing market. The Government should be congratulated on implementing promptly a policy that has, for once, triggered a response exactly in line with their objectives.

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