High LTV Products Provide Starter Options
With so much talk lately of rising housing prices, many potential homebuyers are feeling the pressure to get on the property ladder now before prices become unaffordable. Many people, however, are held back because they cannot raise the required deposit which can often exceed 25 % of a property’s market value. As a result, these people often end up living with family or staying in rented accommodation for longer than they would like to. Options, however, exist for homebuyers that cannot raise large deposits to take out 95 % and 100 % mortgages.
These high loan-to-value deals are difficult to come by, but they do offer an important opportunity for those who want to buy a home but can’t raise the necessary deposit that other schemes require. This article will talk about these two types of mortgages, as well as the related NewBuy products, so homebuyers will have a better idea of what options are available to them.
95 per cent mortgages
These require the homebuyer to raise only five percent of the property’s value for a mortgage deposit. These mortgages are not nearly as common as 75 or 60 per cent mortgages, but they are still available. An important point to keep in mind, however, is that many lenders will only offer these loans to existing borrowers and customers, meaning first time house buyers can have a hard time finding a high LTV mortgage.
This market however, is constantly evolving, and new options are being made to first time buyers all the time, so consumers need not be too discouraged. For those who are moving, however, their options may be severely limited. The advantage with these mortgages, aside from their low deposit requirements, is that they come in a wide variety, such as fixed, variable, and discounted, meaning consumers have plenty of options when shopping around. On the downside, 95 per cent loans come with high fees, and, as with any high LTV mortgage, the interest rates are much higher than with other mortgages.
100 per cent mortgages
Much harder to come by and even rarer than the 95 per cent mortgage, consumers will have a very hard time finding them. Most of these mortgages are restricted to banks’ current borrowers, although first time homebuyers may have luck if they are long standing customers with a bank. Although they require no deposit, they come with a couple drawbacks. Unlike 95 per cent mortgages, 100 per cent mortgages are almost exclusively available at fixed rates. The fixed-rate terms are usually for the first two years, after which the borrower will be subject to a likely much higher variable rate. Also, along with all of the arranging fees associated with all mortgages, high LTV mortgages like 100 per cent mortgages are also subject to a higher lending charge. Nonetheless, these mortgages can be useful for those who want to get onto the property ladder sooner, despite the high monthly mortgage payments. For those who are currently renting, for example, they may find that even with a high LTV mortgage the monthly payments are still comparable to or even lower than rent payments.
The NewBuy scheme is a government initiative that falls under the Help to Buy scheme. A NewBuy prooduct works the same as a 95 per cent mortgage, with homebuyers only being required to put down a five per cent deposit on the home. The difference is that the government will guarantee the loan and thereby protecting the lender if the borrower has to default. To be clear, this is not a loan or subsidy to the borrower, rather it is an incentive to get lenders to be more willing to give out mortgages in exchange for low deposits. In order to find a NewBuy mortgage, the homebuyer must find both a property and a lender participating in the program.
Getting onto the property ladder is an important goal for many young people, as well for many others who may feel stuck in rented accommodations. A high LTV mortgage carries certain risks, like high fees and interest rates, but for those who are determined to buy a mortgage sooner rather than later they can be a useful tool.