Buy a house with a 5% deposit
Not got a big deposit? It's not necessarily a problem with the new breed of 95% mortgages.
March has been a great month for first-time buyers with a small deposit, with a rash of new deals being launched for those who can only muster 5% of their property’s value to get onto the ladder.
And, let’s face it, depending on where you live in the country, 5% can still be a lot of money. With the average house price in London at over £280,000 according to Nationwide for example, 5% still amounts to a hefty £14,000.
How do they work?
They all work differently but some of the key schemes are outlined below:
Barratt Homes’ Helping Hand scheme, in conjunction with Hitachi Capital, lets parents help their child borrow more money, without requiring them to put up security against the mortgage (as many guarantor mortgages do).
With this mortgage you can not only pay off your mortgage early, but you can also save thousands of pounds!
Instead, parents take out an unsecured loan with Hitachi for up to 15% of the purchase price towards a deposit on a new Barratt home.
The child provides a 5% cash deposit and then only needs to secure an 80% LTV mortgage in order to make the purchase.
It sounds a bit complicated but it works for parents who want to help their kids but whose equity is tied up in their own property. They may be able to afford the loan repayments, which are charged at an affordable 5.4%, and they can overpay without penalty.
The National Counties deal is more of a straight guarantor mortgage, allowing first-time buyers to borrow up to 95% of the property’s value. Your helper (a friend or family member) puts up their own main residence as security against the loan. In other words a legal charge is held over their home in case you default on your mortgage payments.
The Lloyds TSB Lend a Hand mortgage uses a similar principle but works a little differently.
It enables first-time buyers to get a mortgage with the backing of a helper who can put up their savings as additional security against the mortgage.
The friend or family member needs savings equalling 20% of the property’s value and the first-time buyer’s deposit must be at least 5%.
This means that you can borrow a mortgage at 75% of the property’s value, and the savings representing 20% are held as security against the loan. Your helper earns interest on their money and they eventually get it back assuming you do not default on your mortgage.
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See the guideIn recent weeks these existing schemes have been added to by more 95% LTV deals -- great news for potential first time buyers.
What’s new?
Lloyds TSB has just announced a new version of its Lend a Hand mortgage, with Local Authorities (LAs) taking the part of the helper.
Blackpool, Warrington, Newcastle under Lyme and East Lothian have already signed up to pilot the scheme, with the lender hoping more will follow suit throughout the year.
Each LA will agree where in their area the scheme will be available and first-time buyers will choose homes from that area.
The LA provides a cash-backed indemnity for up to 20% of the property’s value and the buyer will put down a 5% deposit.
Then the buyer can take out a loan at 75% LTV (between £25,000 and £350,000).
This is not shared ownership as the buyer owns the whole property. Instead the council puts up the money as security against the borrower defaulting and for its part it earns interest on the money.
It’s a truly innovative way to help those FTBs onto the ladder who don’t have parents with the money to do so themselves. But, of course, at a time of mega council cutbacks it has come in for some stick for using precious funds to help people onto the property ladder.
What else?
Other 95% deals that have been launched this month include:
Connells and Skipton Building Society have launched two new mortgages -- one up to 95% of the property’s value at 6.49%, and one up to 90% at 5.89%.
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Both are two-year fixed rates and the 95% deal comes with a tiny fee of £195 while the 90% deal has a £1,190 fee.
The deals are only available through Connells mortgage intermediaries so their reach is fairly limited, but Skipton says it will look to roll out the product through more brokers if successful.
Connells has also launched an exclusive deal with NatWest under a similar scheme. The two-year fix up to 90% is just 5.79% -- pipping the Skipton rate -- plus it comes with a lower £999 fee. Again it is only available under Connells’ limited distribution.
Taylor Wimpey is offering first-time buyers 95% LTV mortgages on a number of its developments in the East Midlands, East Anglia and East London.
The Take5 deal is in conjunction with Melton Mowbray Building Society and Saffron Building Society and the two-year fixed rates will have rates between 5.49% and 5.99%.
Finally, Clydesdale and Yorkshire Banks have launched a straight 95% LTV mortgage.
It’s fixed for three years at 6.99% with a £599 fee -- not the best rate in the world, but what do you expect when borrowing 95% of the property’s value in the current climate?
The market is clearly not ideal for first-time buyers without a substantial deposit but the mortgages launched this month show a willingness from some lenders and property businesses to come up with new ideas.
And for those first-time buyers who do have 10% or 15% to put down, below are some of the best deals around:
10 top variable deals
|
LENDER |
DEAL |
RATE |
FEE |
MAX LTV |
|
2-year discount |
2.59% |
£995 |
85% |
|
|
3-year discount |
2.95% |
£995 |
85% |
|
|
2-year discount |
2.99% |
£998 |
85% |
|
|
2-year discount |
2.99% |
£999 |
85% |
|
|
2-year tracker |
3.49% (Base + 2.99) |
£995 |
85% |
|
|
2-year tracker |
3.49% (Base + 2.99) |
£199 |
85% |
|
|
Term tracker |
3.89% |
£999 |
85% |
|
|
Term tracker |
4.19% (Base + 3.69) |
£999 |
90% |
|
|
Term variable |
4.29% |
Fee-free |
90% |
|
|
Term discount |
4.64% |
£1090 |
90% |
10 fabulous fixes
|
LENDER |
DEAL |
RATE |
FEE |
MAX LTV |
|
2-year fix |
4.18% |
£995 |
85% |
|
|
2-year fix |
4.29% |
£995 |
85% |
|
|
2-year fix |
4.49% |
Fee-free |
85% |
|
|
2-year fix |
4.99% |
£1,995 |
90% |
|
|
2-year fix |
5.15% |
£894 |
90% |
|
|
3-year fix |
5.39% |
£495 |
85% |
|
|
2-year fix |
5.49% |
£995 |
90% |
|
|
2-year fix |
5.29% |
£999 |
90% |
|
|
5-year fix |
5.49% |
£995 |
85% |
|
|
5-year fix |
6.29% |
£999 |
90% |
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At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
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