Are 95% Mortgages Back?

by Mark Johnston

With high rental costs and high inflation most first time buyers are not able to save substantial deposits which are now required for most current mortgages. However many of these potential first time buyers would and are capable of supporting a mortgage as they are already paying these amounts in rent. The majority of these people are frozen out of the property market due to the large deposits asked for. 

There is however signs of hope for the first time buyer on the mortgage front, although faint at the moment.

David Hollingworth, communication director of mortgage broker London and Country suggests there are a few mortgage products available for people who can only raise a 5% deposit.

So what is available now?

Saffron building society is the latest lender to offer 95% loan to value (LTV) mortgages, fixed at 6.49% until April 2015, this particular loan is available with a good rental history of at least 12 months.

Skipton building society has a “best buy” 95% (LTV), 2 year fixed rate at 5.99% until July 2013, with a low set up fee of £195 and a maximum loan size of £250,000.

Both the Yorkshire bank and Clydesdale bank offer a 3 year fixed rate for first time buyers of 6.99% for anyone wanting to borrow 95% (LTV), in each case the arrangement fee is £599.

Ray Boulger of broker firm John Charcol suggests that mortgage lenders are heavily promoting 2 year fixed mortgages, as the headline rates are more eye catching. However for first time buyers wanting the financial security you get by fixing monthly mortgage payments, he suggested that 5 year deals are a much better bet in the long run than the 2 year deals.

For first time buyers that can afford a 10% deposit, there is however a much bigger choice in the market and rates are more palatable.

The Yorkshire building society provides some decent deals at 90% (LTV), such as a 2 year fixed rate of 4.99%, with a product fee of £995, £800 of which is added to the mortgage on completion, however this product is only available via its branches.

One of the most competitive 5 year fixed rate mortgages of 5.89% with a £999 application fee for those with a 10% deposit is from the Co-operative bank. However their 10% deposit deals are only available for first time buyers with an annual household income of at least £20,000.

Many of the 90% and 95% loan to value (LTV) products can have major strings attached as there will often be qualifying requirements and the credit scoring will be tougher.

Lenders are being very choosy on who they accept for the 95% loan to value (LTV) deals, with about only 1-5 applicants qualifying.

Prospective first time buyers also face barriers of developing a credit history to pass the automated credit scoring process used by some lenders. To assist first time buyers with this barrier lenders now use manual underwriting as this looks at each application individually so to assess the affordability of the mortgage requirements for the application.

Lenders are wanting to ensure borrowers do not overstretch themselves and can afford to meet their mortgage obligations in coming years.

In conclusion whilst it is good to see lenders back in the 95% market, many feel those rates are a lot higher than they want pay, particularly when the Bank of England base rate looks like staying at 0.5% for another few months at least.

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