Here's what you need to know about the Prime Minister's plans to increase the availability of 95% mortgages.

The Prime Minister has promised to help more people get onto the housing ladder through increasing the availability of mortgages for those with small deposits.

In his address to the virtual Conservative Party conference, Boris Johnson said millions of people who could afford a mortgage were prevented from getting onto the property ladder because they could not save the necessary deposit.

In a bid to turn “generation rent into generation buy”, he announced plans for a new scheme to give more people the chance to take out long-term fixed rate mortgages for up to 95% of their home’s value.

On a £200,000 property, this would mean borrowing £190,000 and saving £10,000 to use as a deposit.

Johnson said the government believed it would enable an additional two million people to become homeowners, representing the biggest expansion of homeownership since the 1980s.

Why has Johnson announced the scheme?

The government has already launched a number of initiatives to help more people get onto the property ladder.

But the issue of homeownership has been made more urgent by the coronavirus pandemic and its associated lockdowns.

In the past, 95% mortgages have been widely available, but the majority have been withdrawn by lenders since the pandemic struck.

Addressing the conference, Johnson said millions of people, who were often young, were locked down in rented accommodation which lacked privacy, outside space or an appropriate place in which to work.

He added that while some people were happy to live in a rented home, the majority of people aspired to buy their own place but were prevented from doing so by the need to save a large deposit.

How could it work?

Johnson did not give any further details at the conference about how the scheme would work, or when it would be introduced.

However, if the government is to tempt lenders back into offering small deposit mortgages, it may have to act as a guarantor.

The size of deposit borrowers have is only one part of the equation lenders look at when deciding how much to lend.

They also consider how affordable monthly repayments are once borrowers’ other outgoings are taken into account, both now and if interest rates rise.

And Johnson has suggested in a recent newspaper interview that the government may look at ways for these stress tests to be removed.

Where can first-time buyers turn for help now?

The government already offers a number of schemes to help first-time buyers get onto the property ladder.

Under the Help to Buy equity loan scheme, people can purchase a new-build home with just a 5% deposit, with the government topping this up with a 20% equity loan that is interest-free for five years.

The scheme is currently available to all buyers, but it is due to be relaunched in April 2021 for first-time buyers only.

Other help includes the First Homes scheme, which enables first-time buyers and key workers in England to purchase a new-build home at a 30% discount, and shared ownership, which enables people to purchase a share in a property and pay rent on the part they do not own.

Those aged under 40 who are saving for a deposit can use the Lifetime ISA, under which the government contributes up to £1,000 a year to savers who set aside £4,000 annually towards the purchase of a new home or retirement.

First-time buyers have also benefited from a stamp duty exemption on homes costing up to £300,000, although the chancellor recently announced a stamp duty holiday for all buyers on homes costing up to £500,000 until 31 March 2021.

Top takeaways

  • The Prime Minister has promised to increase the availability of mortgages for buyers with small deposits
  • The government believes it will enable an additional two million people to buy a property
  • Johnson said it would represent the biggest expansion of homeownership since the 1980s

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