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Everything you need to know on Government-backed 95% mortgages - Can you afford to buy your first home in Greater Manchester?

Manchester Evening News logo Manchester Evening News 08/04/2021 Saffron Otter

Rishi Sunak announced a new mortgage scheme to help people get on the property ladder.

Unveiled during the 2021 Budget, the Government scheme encourages lenders to offer mortgages to potential homebuyers with a five per cent deposit.

It launched on April 1, and is scheduled to run until December 31, 2022, but it could be extended.

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

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

But can you afford your first home with one? And how much would you need to have saved up to buy a property in Greater Manchester? We spoke to experts from Quittance to find out everything you need to know.

Is it affordable?

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

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

They say the average 5pc deposit in the North West for first-time buyers is £7,754.

First-time buyers in Greater Manchester need a salary of £34,915 to meet the affordability criteria for a 95pc mortgage, according to the data. This is 22pc higher than the area's median salary of £28,473.

The average deposit that a first-time buyer needs for a 95pc mortgage in England is £11,087. The average salary required is £46,812.

diagram: The average 5pc deposit in the North West for first-time buyers is £7,754. © Quittance The average 5pc deposit in the North West for first-time buyers is £7,754.

Who will the scheme actually help?

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.

Therefore taking 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, the experts say. Joint purchasers with two salaries are also more likely to benefit.

a woman standing in front of a refrigerator: Joint purchasers with two salaries are also more likely to benefit. © PA Joint purchasers with two salaries are also more likely to benefit.

Individual buyers with lower incomes who may have saved a 5pc 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.

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 5pc 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 5pc deposit.”

He added: “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.”

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