Where did all the 95% mortgages go?
Around the middle of last year, mortgage lenders’ collective anxiety about the effects of the pandemic caused them to withdraw virtually all 5% deposit mortgages. They were worried about a fall in house prices and negative equity, so 95% loan to value (LTV) mortgages disappeared, and most 90% mortgages went with them.
You’d think, given the positive vaccination news and the feeling that the UK is moving in the right direction, that lenders might have started to be a little more optimistic in their offerings, but even as recently as last month, Moneyfacts reported there were just five 95% LTV mortgages available.
What’s the problem?
If you’ve been looking to buy a house over the past 12 months, you’ll know all too well the problem a lack of affordable mortgages causes. At a 95% LTV, your deposit on a home valued at 200,000 will be £10,000. When your best option is an 85% mortgage, you’ll need to find £30,000. For virtually everyone I’ve spoken to over the past few months, that’s not even close to being an option.
How did the Budget affect 95% mortgages?
Conscious that the longer the situation dragged on the more damaging it would be for the housing market, the Chancellor used the Budget to try and kickstart some movement. He announced that he would support lenders in offering 95% mortgages by enabling them to buy a guarantee on the portion of the mortgage between 80% (the amount many have been willing to offer) and 95% (the amount most first time homebuyers need).
The scheme opens in April, will run until the end of 2022, and many lenders are now offering 95% mortgages as a result.
Will 95% mortgages be affordable?
Yes. We haven’t seen all the details yet but it looks as though most rates will come in somewhere between 3.5-4%. A larger deposit may enable you to shave 0.5% off that, but that’s always been the case. The Government has also instructed lenders to offer 5 year fixed rate deals as a condition of getting the guarantee, so once you’ve been able to find the right deal, you should be able to keep it for a while and give yourself some security.
Will you be able to get a 95% mortgage?
The home you’re buying will need to be a first home valued at £600,000 or less. You’ll only be able to take advantage of the deal with a repayment mortgage (as opposed to interest only). Beyond that, there’ll just be the usual affordability hurdles to negotiate.
Is a 95% mortgage a good idea?
If you’re doing your research right now, you’ll probably come across plenty of online opinion that warns of negative equity and the long term cost of a 95% mortgage. That’s all true. Paying interest on 95% of the value of your home for 25 years is inevitably going to be more expensive than paying it on 80 or 85%. And yes, negative equity is a greater risk with a 95% mortgage – although if you’re planning to stay in your home for a good while, it’s not much of a risk at all.
But my position on this is a simple one. If you need a 95% mortgage to buy a home – and most first time buyers do – then telling you a mortgage for 80% of the value is a better option is purely academic because you can’t afford it.
The Chancellor said his move was about helping ‘generation rent’ become ‘generation buy’. A 95% LTV mortgage helps make that a reality for many more people, and I’m all for it.
If you’re looking for a 95% mortgage, we’d love to help. Talk to us now.
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