After the decline of the 100% mortgage many borrowers fell back on the next available option which was the 95% mortgage. However, as the credit crunch got harder especially for self cert mortgages and first time buyers even these options started to disappear from the market. You could find the odd deal here and there, but if you examined the small print closely there was usually an underlying catch, likely to cost you in terms of interest or other securities.
However, there have been some interesting recent moves in the UK housing market. Even though house prices are rising and inflation is never going to go away there does seem to be a bit more hope for first home buyers.
It's gradually starting to get easier to get a mortgage and a few lenders are starting to make their 95% mortgage offers available again. There is no question about the fact that you will have to pay higher interest rates, but for the first home buyer the opportunity to buy their own home is not something to be disregarded.
This is being taken by many as a good sign that the housing market is coming back to life. Slowly but surely mortgage lenders are starting to moderate their rigid lending criteria as they realise they are looking at hefty profit margins again.
From a first home buyer's point of view, this has renewed hope that they can get a reasonable mortgage for purchasing their home.
Recently Lloyds has offered a 95% mortgage for first-time buyers at a fixed three year rate of 4.39%, plus a fee of £995. There is a downside, in that buyers wanting to take advantage of this deal need to find a 5% deposit, and also need 20% worth of help from family members or friends.
The total deposit of the borrower must equate to 25% of the property value, meaning the borrower pays 5% upfront and the remaining 20% is secured in a Lloyds account under legal charge for 42 months. Whilst the 20% remains the property of the lender it is virtually untouchable for that period. So for first time home buyers who have parents or friends with financial equity they don't need to touch for 42 months this could be quite an enticing option. The money under legal charge would receive interest at 3.5%.
Once the 42 month period expires the money is released from legal charge, providing mortgage payments and the house value have brought the loan to value down to 90%.
Should the loan to value still exceed 95% at the end of the 42 months, the legal charge remains until a drop in ratio to 90%. When this target is reached the borrower is offered the option to remortgage at a competitive rate.
Whilst this may not be the ideal solution, it is one option for first home buyers to get into a new home, with a low deposit. For parents that are looking to assist their children buy a home, and can afford to have their money locked away for the 42 month period, this could prove to be popular.
No doubt, over the coming months we will start to see a variation on these types of schemes, some will be better and others worse. One point to keep in mind is that you should always read the fine print.
The way the market currently stands the 95% mortgages as we knew them are virtually dinosaurs, but a new breed seems to be appearing, so keep your eyes peeled. Hopefully this is a start of some affordable mortgage options for the home buyer to look forward to.