by Mark Johnston
Building societies offering low deposit mortgages.
It has become increasingly difficult for first time buyers to get a decent mortgage deal with a small deposit in the aftermath of the credit crunch.
The mortgage market now appears to have a definite split between those that have a hefty chunk of equity in their property or a large deposit, and so qualify for the new ‘dirt cheap’ deals, and the ‘have nots’, namely first time buyers.
Mark Harris, chief executive of mortgage brokerSPFPrivate Clients, said “unfortunately, some of the cheapest mortgage rates now on offer are only available to borrowers with large deposits, clean credit histories and an uncomplicated property”.
The Council of Mortgage Lenders (CML) figures show that the average loan to value (LTV) of the 18,100 loans that were approved for first time buyers in May 2012 was 80%.
However, there are some 95% loan to value (LTV) mortgages starting to appear which will give first time buyers back some autonomy and choice, although it can still be hard to find a 95% loan to value (LTV) mortgage with a high street bank.
Therefore the best places to look for these deals are with building societies. According to moneyfacts.co.uk, the financial information website, there are currently 64 deals available with a 95% loan to value (LTV) compared to just 35 in August last year.
David Hollingworth, of mortgage brokerLondonand Country stated that “we are getting a wider selection of loans for borrowers with smaller deposits”.
Saffron building society is offering a 95% loan to value (LTV) deal that comes with a rate of 6.49% fixed until February 2016 with an arrangement fee of just £195.
This mortgage is also quite unique in the way it judges borrowers; the mortgage is aimed at first time buyers that have been renting for 12 months or more. The lender then uses rental history to determine whether the potential borrowers credit worthiness instead of income multiples.
This mortgage therefore seems ideal, but it does come with a catch and that is that potential buyers have to be buying a property in theEssex, Hertfordshire,Suffolk,Norfolkor Cambridgeshire areas that the building society serves.
Coventry building society has also launched a new 5 year mortgage for first time buyers who have a 10% deposit, it has a fixed rate of 5.19% with a low fee of £199, and buyers also receive a £500 IKEA voucher on completion.
However, this too comes with a catch, to qualify the borrower, their parents or grandparents must have had a savings or current account or mortgage with Coventry building society for at least the last 3 years.
The building society do however offer the same loan with a £499 fee for first time buyers with a 15% deposit, whether or not they or their family hold accounts.
The thing to remember however is that buying with a high loan to value mortgage does present some risks, such as negative equity if the property loses value, this would leave borrowers in a difficult position if they want to move or re-mortgage.
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