95% LTV Mortgages Return – Yellow Brick Mortgages
What is the Mortgage Guarantee Scheme?
The reason the government’s Mortgage Guarantee Scheme has been launched is to try to make it easier for people to buy homes. Just the scheme’s announcement has already inspired some lenders to launch mortgages with a 5% deposit requirement and many more lenders will likely release similar products soon, which will give more options to people with a smaller deposit.
What is the difference between the Help to Buy Scheme and the Mortgage Guarantee Scheme?
The Help to Buy Equity Loan scheme is available for First Time Buyers only, and it’s an option for potential purchasers to buy with a 5% deposit, but purely on new build homes. The buyer puts down a 5% deposit and the government provides a 20% equity loan that enables the purchaser to buy a higher-priced property. The equity loan is interest-free for five years.
The Mortgage Guarantee Scheme will be available on all properties and offers a 95% mortgage product. The interest rates will be a bit more expensive than with the Help to Buy Equity Loan, but you will have more choice of properties.
Which lenders will be or are already offering mortgages under the Mortgage Guarantee Scheme?
Some lenders have committed to the Mortgage Guarantee Scheme when it launches and these are:
- Lloyds Group including Halifax
- Virgin Money
Currently, there have been products announced for launch from Monday 19th April 2021 from Santander and from Tuesday 20th April 2021 from Halifax, with more lenders expected to follow very shortly.
There are also those lenders who have already returned to the 95% mortgage (or 5% deposit mortgage) products outside of the scheme and this includes:
- Bank of Ireland
- Coventry Building Society
- Skipton Building Society
What interest rates will be available on 95% mortgages?
With the products that have launched before the Mortgage Guarantee Scheme, rates have been around 4%, but it’s likely that as more lenders come to market with these products, it will create a bit more competition and a reduction in the rates.
The first released products on the Mortgage Guarantee Scheme started from 3.73% for a 2 year fixed rate.
Can you get a 95% mortgage on a new build property?
A small number of lenders will consider a 95% mortgage on a new build property and if you’re a First Time Buyer, you could also look at the Help to Buy Equity Loans.
Can I use the new 95% Mortgage Guarantee and take advantage of the Stamp Duty holiday at the same time?
The current Stamp Duty holiday, in some form, will be available until the end of September. It’s probably quite unlikely that anybody will buy and complete their mortgage before the end of June, which is when the current Stamp Duty holiday on purchases up to £500,000 officially ends and reduces to £250,000, at the moment, because of the high demand and number of transactions being worked on. But it’s possible to do so if you are lucky and everything proceeds quickly. After the Stamp Duty Holiday drops to £250,000 exemption, First Time Buyers will still be exempt on Stamp Duty on their first homes to £300,000 and this will continue as things stand after the Stamp Duty Holiday Schemes end completely.
How much can I borrow with a 95% mortgage?
How much you can borrow is dependent upon the lender’s criteria, but generally, it’s capped at around 4.49 times your income.
What are the risks with a 95% mortgage?
As 95% mortgages are considered high-risk lending, so if the property price falls for any reason after purchase, you may end up in negative equity. Ideally, that shouldn’t happen, but it’s impossible to predict future property prices on the market. The main thing really is to ensure that it’s affordable, so capital can be reduced as quickly as possible. Negative Equity is where you owe more on your mortgage than your house is worth.
What are the advantages and disadvantages of 95% mortgages?
Other than the potential for Negative Equity, which doesn’t affect you until you want to sell, the interest rates are likely to be higher. Those who can quickly save a 10% deposit may be better to wait and buy with a 10% deposit.
In terms of advantages, it enables you to get on the property ladder sooner and potentially get away from paying expensive rent, or upsize your current home sooner even if you do not have much existing equity in your current home.
Should I save for a bigger deposit?
It depends on how long it’s going to take for you to save more. If it’s fairly easy to save a larger deposit or family can help you, it can help to reduce the cost of the mortgage initially. On the other hand, delaying your purchase often means that you’re buying at a higher purchase price. So it really does depend on personal circumstances.
What are the alternatives to the Mortgage Guarantee Scheme?
There are other government schemes available such as the Shared Ownership Scheme which helps you to buy a property when you can’t necessarily afford to buy 100% of a property, to buy a share of a property.
This could be, for example, 50% of the property which means that you will only need to pay a deposit on the share you are buying not the full property value and the monthly repayments will be based on the equivalent of 50% of the purchase price less your deposit. You will also pay rent on the share that you don’t own, to the housing association.
In the future, you would be in a position potentially where you can then staircase up to own 100% of the property, if and when you can afford to do so. It’s a good way to get onto the ladder and build up some capital as equity towards your next property.
Guarantor Mortgages and Family Assist Mortgages are similar and another option, but again, largely depends on your current circumstances. The Family Assist Mortgages, if you haven’t got a deposit, allows your family to invest some of their savings with one of the lending banks, as a form of guarantee. With Guarantor Mortgages, you have joint mortgages with a family member.
The key is to speak to a Mortgage Broker to work out what options are available to you and narrow down which will work best for you.
How should I be preparing to apply for a 95% mortgage?
Saving as much as possible for the deposit and fees is a good way to prepare. The other thing you should be doing is reviewing your credit file.
If you speak to us as early as possible about your credit file, we can try to make a plan to improve it before you apply. Things like ensuring you’re on the electoral roll, using your credit in the right way, for example paying more than the minimum payment on credit cards or clearing them.
Credit scoring is quite a significant part of getting a 95% mortgage, due to the higher level of risk, so lenders are going to look at them quite closely, although the Mortgage Guarantee Scheme will help with that.
How can Yellow Brick Mortgages help?
We specialise in the different lenders’ criteria and have a good understanding of the schemes available, so we can provide the best advice on all of the options. It’s important to consider your long-term goals and we can make sure that in the next five or ten years you have saved as much money and built as much capital as possible.
Each lender looks at different criteria in terms of income and affordability, so we’re best placed to show you how to put forward your case in the best light to maximise your borrowing and find the right rates.
Even if we can’t get something to work for you at the current time, we can give you expert advice on what you need to do to get in that position where you can get a mortgage later on and secure your dream home.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE