Budget 2021: Chancellor Rishi Sunak announces 'mortgage guarantee' for 5% deposit buyers

3 March 2021, 13:38 | Updated: 3 March 2021, 17:57

By Megan White

Chancellor Rishi Sunak has announced a new "mortgage guarantee" for buyers with a 5 per cent deposit as part of his Budget, telling MPs he wants to turn "generation rent into generation buy."

The new scheme will see lenders benefitting from a Government guarantee on lending to people with a five per cent deposit.

It will be available to current homeowners as well as first-time buyers looking to buy a house for up to £600,000.

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Lloyds, NatWest, Santander, Barclays and HSBC are among those who will be offering the 95 per cent mortgages from next month, with others including Virgin Money following soon after.

The Chancellor also confirmed an extension to the stamp duty holiday, with the £500,000 nil rate band extended from March 31 to June 30.

The band will then fall to £250,000, double its standard level, until the end of September, before returning to the usual level of £125,000 from October 1.

Mr Sunak told MPs: "Lenders who provide mortgages to homebuyers who can only afford a 5% deposit will benefit from a Government guarantee on those mortgages.

"I'm pleased to say that several of the country's largest lenders including Lloyds, NatWest, Santander, Barclays and HSBC will be offering these 95% mortgages from next month, and I know more, including Virgin Money will follow shortly after.

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"A policy that gives people who can't afford a big deposit the chance to buy their own home. As the Prime Minister has said, we want to turn generation rent into generation buy."

Under the mortgage guarantee scheme, the Government will offer to take on some of the risk of low deposit loans, meaning lenders would have some protection from potential losses.

Low deposit loans are often seen as more of a risk because borrowers could end up in negative equity if house prices fall - meaning they owe more than their property is worth.

All lenders under the scheme will offer mortgages fixed for at least five years as part of their range of products, providing options for consumers with smaller deposits who want the security and predictability of a mortgage with a fixed rate over a longer term.

The new initiative follows in the footsteps of the UK-wide Help to Buy mortgage guarantee scheme, which was launched in 2013 and helped to reinvigorate the market after the 2008 financial crisis.

That scheme, which also offered 5% deposit mortgages, is no longer running.