Can you afford to buy your first home with a Government-backed 95% mortgage?

In the 2021 budget announcement on the 3rd March, Rishi Sunak revealed a new mortgage scheme encouraging lenders to offer mortgages to home movers with a 5% deposit.

The scheme is initially scheduled to run from 1 April 2021 to 31 December 2022, but it could be extended.

The scheme is available to buyers purchasing a property under £600,000. Both first-time buyers and current homeowners are eligible for the scheme.

The UK’s top five banks have announced their support of the initiative.

How affordable are 5% deposit mortgages for a first-time buyer?

To help first-time buyers who are unsure whether they can afford a home under this new scheme, we looked at how much a buyer would need to save for a 5% deposit in the different regions of the UK.

These figures are based on the average price of property purchased by first-time buyers in each region, according to HM Land Registry.

Chris Salmon, Director of Quittance Legal Services, said, “When Covid first hit, lenders were quick to restrict the availability of low-deposit mortgages. This scheme will help to reverse that.”

“The major lenders have signalled their support for the scheme, which will assist some first-time buyers with at least a 5% deposit to get a foot on the property ladder.”

“However, lenders’ affordability criteria will still mean that low earners in many more expensive parts of the country will still struggle to get a mortgage, even with a 5% deposit.”

“As we’ve seen with Help to Buy and the recent Stamp Duty holiday, the scheme could also contribute to rising property prices, keeping home ownership out of reach for some.”

How much deposit do I need for a 95% mortgage?

In addition to a deposit, a first-time buyer hoping to get a mortgage will also need to pass their mortgage lender’s affordability criteria.

Different banks and lenders have different criteria. For buyers that meet the other key lending criteria, most lenders will lend up to 4.5 times the annual income of the applicant (or applicants) applying for a mortgage.

For each region of the UK, the following map shows the income needed to buy an average first-time buyer property with a 95% mortgage:

95 percent mortgage affordability map

Infographic link: https://www.quittance.co.uk/themes/quittance/newcolassets/95-percent-mortgage-map.jpg

Regional data:

Region Jan 2021 FTB Price (latest HMLR data) 5% deposit Mortgage applicant(s) income needed Median salary
North East £118,118 £5,906 £24,936 £27,248
North West £155,088 £7,754 £32,741 £29,120
Yorkshire and The Humber £152,827 £7,641 £32,263 £28,080
West Midlands £174,484 £8,724 £36,836 £28,704
East Midlands £175,415 £8,771 £37,032 £29,142
South West £224,261 £11,213 £47,344 £29,016
South East £270,720 £13,536 £57,152 £32,864
East of England £255,988 £12,799 £54,042 £31,460
London £433,631 £21,682 £91,544 £37,032
Wales £153,083 £7,654 £32,318 £27,965

Click here to see county-level data

County Jan 2021 FTB Price (latest HMLR data) 5% deposit Mortgage applicant(s) income
Buckinghamshire £316,828 £15,841 £66,886
Cambridgeshire £258,481 £12,924 £54,568
Cumbria £140,392 £7,020 £29,638
Derbyshire £167,832 £8,392 £35,431
Devon £219,728 £10,986 £46,387
Date £44,197 £2,210 £9,330
Dorset £243,492 £12,175 £51,404
East Sussex £244,779 £12,239 £51,676
Essex £271,636 £13,582 £57,345
Gloucestershire £225,637 £11,282 £47,634
Hampshire £255,102 £12,755 £53,855
Date £44,197 £2,210 £9,330
Hertfordshire £333,037 £16,652 £70,308
Kent £255,122 £12,756 £53,859
Lancashire £131,327 £6,566 £27,725
Leicestershire £209,973 £10,499 £44,328
Lincolnshire £165,297 £8,265 £34,896
Date £44,197 £2,210 £9,330
Norfolk £204,261 £10,213 £43,122
Northamptonshire £201,144 £10,057 £42,464
Oxfordshire £311,604 £15,580 £65,783
Somerset £207,528 £10,376 £43,811
Staffordshire £174,946 £8,747 £36,933
Date £44,197 £2,210 £9,330
Suffolk £207,745 £10,387 £43,857
Surrey £345,526 £17,276 £72,944
Warwickshire £214,458 £10,723 £45,274
West Sussex £265,398 £13,270 £56,028
Worcestershire £203,033 £10,152 £42,863
London £433,631 £21,682 £91,544

Who will the scheme actually help?

According to the latest HMLR data available (January 2021) in March 2021, the national average asking price of a first-time buyer property was £221,743.

A 5% deposit would be £11,087.

Currently, lenders will let you borrow up to 4.5 times your annual income.

In the example of the average first-time buyer property, the buyer would need to obtain a mortgage of £210,656 (£221,743 minus the £11,087 deposit).

The first-time buyer would therefore need an annual income of £46,812 (£210,656/4.5)

Even if the first-time buyer is earning the overall 2020 national average salary of £38,000, the scheme does not go far enough to assist the average first-time buyer.

If you have a good salary but little in savings, you would benefit from the scheme. Joint purchasers with two salaries are also more likely to benefit.

Individual buyers with lower incomes who may have saved a 5% deposit won't benefit as they still might not meet the “4.5 times annual income” affordability criteria.

How much the scheme will assist the average first-time buyer will depend on the area. Buyers in the North, for example, stand to benefit more than those buying in London.

* The latest HMLR data available fin March 2021 was for December 2020

Sources

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Email: media@quittance.co.uk
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Chris Salmon, Director

Author:
Chris Salmon, Director