The chancellor is set to announce a mortgage guarantee scheme to help people with small deposits get on the property ladder in this week’s budget.
The government will offer incentives to mortgage lenders in a bid to bring back 95% mortgages which have all but disappeared during the Coronavirus crisis.
Unlike the Help-to-Buy Scheme, the government will not restrict the low deposit scheme to first-time buyers or new-build homes.
Instead, the Treasury will guarantee part of the loan to encourage banks to offer low deposit mortgages on properties up to £600,000.
Lenders see low-deposit mortgages as being high risk as they are more vulnerable to fluctuations in the property market. They fear that Covid-related job losses will push property prices down leaving people in negative equity.
Mr Sunak will outline the scheme in his budget on Wednesday. He said: “Owning a home is a dream for millions and we want to help as many people as possible”
The chancellor has based the new scheme on the Help to Buy mortgage guarantee scheme, a policy the Treasury said, “reinvigorated the market for high loan-to-value lending after the 2008 financial crisis”.
The new scheme could also coincide with the end of the stamp duty holiday on 31 March – though this may yet be extended.
Banks are expected to have capacity to lend to about 3,000 individuals a month under the scheme.
It is expected the new scheme will boost the property market however, it could prove controversial if it pushes house prices to beyond the means of the first time buyers the chancellor hopes to help.
Given the risks involved, it is likely mortgage providers will still only lend to those with a regular income, irrespective of any government incentive.
For those, however, lucky enough to have held on to their jobs during the pandemic, the low deposit scheme looks to be good news.