This week major high street lenders introduced the return of 95% mortgages to their stable of financial products in a move that essentially strives to offer support to first-time buyers.
As part of his ambitious economic recovery plan, Chancellor Rishi Sunak announced in his Spring budget that the U.K Government would provide the required support to allow mainstream lenders to offer prospective home buyers 95% LTV rates on mortgages on properties up to £600,000. In a move to turn ‘Generation Rent’ into ‘Generation Buy’ these new mortgage products have the potential to give a leg-up to young and low-income buyers who struggle to meet the needs of the more readily available 90% & 85% mortgages.
This is certainly welcome news to many buyers who face the daunting task of competing in a market where prices are continuing to be driven skyward. In Scotland, house prices have grown by around 7% versus this time last year, whilst our branches in Ayrshire and Renfrewshire have experienced average house price increases of over 15%.
Housing Secretary, Robert Jenrick, is quoted as saying “For too many people, no matter how hard they work, home ownership can seem out of reach. One of the biggest divides in our country has been between those who can afford their own home and those who cannot,”. The introduction of low deposit mortgages is seen as an important step toward righting that issue.
So, who is offering the mortgages? Of the major players, so far Lloyds Banking Group, Santander, Halifax, Barclays, HSBC and NatWest have introduced 95% mortgages to their portfolio and Virgin Money are expected to follow suit in May.
As with most things money related, there are certainly some caveats and drawbacks that need to be addressed.
Firstly, at the time of writing this, we are unable to find any high street lenders offering 95% mortgages on new build properties – and that is a real issue because many first-time buyers have taken solace in the certainty of fixed price new builds in recent times as they are seen as a safer option rather then trying to compete in the open market. This isn’t to say you won’t find a 95% mortgage with a specialist lender, but they are certainly not being actively marketed.
Another point worth noting is the cost of a 95% mortgage; in short, they are more expensive. Because low deposit mortgages tend to have a higher risk attached to them, lenders set the rates much steeper as a result. Most rates being offered by high street lenders for a 95% LTV mortgage are around about 4% where as stretching to a 10% deposit would see you being offered rates closer to 3%. NatWest are currently offering 95% LTV at 4.04% whilst 90% LTV is 3.23%.
Choice is certainly thinner on the ground as well, Moneyfacts currently highlight 83 products available at 95% LTV whilst there are 293 different 90% LTV products on the market.
Availability is also limited, or certainly the government support to the lenders is certainly limited and will end in December 2022. This means that most prospective buyers will need to be actively saving in order to benefit from this particular low deposit mortgage initiative.
Ultimately the reintroduction of these 95% mortgage rates is a good thing – it will support first-time buyers at a time when house prices are continually going up and it makes deposit levels achievable. It will be interesting to watch the impact the initiative has over the busy Spring and Summer months and hopefully it helps sustain long term prosperity for the sector.
As ever, we would always advise you speak to an experienced financial advisor to give you the best understanding of what products are available and which are specifically right for you. Our branches would happily point you in the right direction should you need any help whatsoever.
