First-time buyers could save £20k through govt’s mortgage scheme

First-time buyers could save as much as £20,000 on a house deposit through the government’s new mortgage guarantee scheme, according to analysis from Barrows and Forrester.

However, the lettings and estate agent has also warned the new scheme could threaten to be a “counterproductive initiative”, as a result of rising house prices.

Barrows and Forrester compared the cost of a 5% deposit under the new scheme, against the cost of a 15% deposit, having seen lenders withdraw most of their 90% and 95% mortgages during the coronavirus pandemic.

The lettings agent stated that the average first-time buyer house price in the UK currently sits at £210,727, meaning first-time buyers would need to save £10,536 for a 5% deposit, compared to a 15% average of £31,609.

In last week’s Budget, the government announced a guarantee to lenders offering mortgages to homebuyers with just a 5% deposit requirement, up to the sum of £600,000.
 
Regionally, the Barrows and Forrester analysis showed that the North East is home to the lowest average first-time buyer property cost at just £120,953, meaning a 5% deposit will now require a saving pot of just £6,048, compared to £18,143 previously.

By contrast, London is home to the highest first-time buyer house price at £431,160 and as a result, the largest cost of a 5% mortgage deposit (£21,558). The lettings agent noted that the government’s scheme means the availability of a 5% deposit would see first-time buyers in the capital benefit from the biggest reduction in mortgage deposit costs, however, dropping by £43,116 from £64,674
 
“We’ve seen numerous schemes targeted at helping first-time buyers get on the ladder in recent years and rightly so, commented Barrows and Forrester managing director, James Forrester.

“The cost of homeownership has spiralled drastically across Britain in the last 30 years and so it’s vital we do all we can to address this issue of affordability and remain a nation of homeowners.
 
“The great news is, that with a 5% mortgage deposit, the initial financial barrier of securing a mortgage will now be far lower than it previously was.”
 
However, Forrester also warned that the latest scheme from the government could also have “potentially detrimental effects”, resulting in house prices climbing further out of reach for homebuyers.
 
“Allowing every man, woman and their dog to buy with a 5% deposit is almost certainly going to push up demand,” he added. “Unfortunately, the government has yet again opted to turn their back where house building is concerned.
 
“The dangerous consequence of fuelling demand while neglecting stock delivery is always an inflated rate of house price growth and so in this respect, it could be a very counterproductive initiative indeed.”

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