Buy a house with 90% mortgage

The range of mortgages for small deposits is growing once again. Robert Powell takes a look at this resurgent high loan-to-value market...

Back from the dead, the supposed scourge of the housing bubble - mortgages with a high loan-to-value ratio (LTV) - are crawling out of the grave.

According to Moneyfacts, there are now 84 mortgages available at 90% LTV or above. The average rate across this range is 4.97% - just six months ago this figure sat at 5.30%.

Good news for first-time buyers

While the return of high-value mortgages may send shivers down the spines of many, they are a welcome lifeline for first-time buyers.

Demand for high deposits, coupled with a lack of mortgage finance has pushed the average age for first property ownership up. Some reports suggest it could now be as high as 43.

However it’s not all good news for prospective homeowners. Stagnant mortgage lending figures suggest that banks are still being picky over who they grant loans to.

But this is no bad thing.

For the right reasons

High LTV mortgages are frequently lambasted for the negative equity risk they open up. Put simply,if you buy with only a small deposit and property prices fall, you could see the amount you owe outstrip the price of your home.That then makes moving, or remortgaging, pretty tough.

But the risk of high LTV negative equity can be contained if you stay in your property for a long period of time. Even if house prices do drop and you hit negative equity after one or two years, chances are after five or ten you’ll have built up sufficient equity in your property to sell up and move on.

This is why it’s essential you pick the right home and buy for the right reason.

Short fixes

Here are the best 90% deals for two and three year fixes:

So while Chelsea Building Society dominates the market, Leek United actually has the best priced deal: a 3.99% three year fix. However this mortgage does come with a fairly punitive £995 fee.

Now, these short-term fixed rates are all sat at a below-average level for 90% deals. But that doesn’t mean you should immediately snap one up.

No-one knows when the Bank of England Base Rate will eventually rise. But one thing is certain: when it does rise, mortgage rates will soar from their current abnormal low. In fact, as I reported last month, they’ll almost certainly climb without the Base Rate shifting at all. The problem with a short fix is that two or three years down the line, when you’re looking to remortgage, you’ll be met by this pumped up market.

Indeed, a short-term fix may leave you just when you need it the most. So it may be a good idea to protect your rate for a longer period of time.

Longer fixes

A five-year fix will guarantee your loan rate for a full five years. Yes, you’ll pay a premium, but you’ll have peace of mind and budgeting security in return.

Here are the best 90% five year fixed deals:

As you can see, HSBC leads the way with a very competitive fee-free 4.89% deal. In my book, this loan is well worth going for over the two- or three-year mortgages detailed above. After all, it’s less than 1% pricier than the best short-term deal (well worth it for an extra two years of certainty) and you don't have to pay a fee, saving you the best part of £1,000.

But if you do need a bit of extra flexibility, or just can’t face locking into a fixed deal when the base rate is so low, there is always the option of a tracker.

Trackers

Tracker mortgages are variable deals that are pegged to the base rate, rising and falling with it. They come in either fixed terms – after which the product reverts to the lender’s Standard Variable Rate – or over the lifetime of the mortgage.

Here are the best 90% tracker deals around at the moment:

On the short-term front, Yorkshire has the best deal with a three-year mortgage at 3.49% above the base rate. However as I mentioned earlier, in the current climate, you should be very careful with two- and three-year deals.

At just 0.60% higher, I’d say HSBC’s lifetime tracker is a far safer bet. Lifetime tracker mortgages generally come without and Early Repayment Charges -fees you have to pay if you want to move to a different mortgage - which gives you an escape route should the economic situation change, and rates start to head skywards.

But 90% products aren’t the only mortgages that have been bouncing back recently.

95% products

A handful of 95% mortgages have begun creeping back into the market over the last few months. And indeed, after the announcement of government plans to underwrite 5% deposit mortgages earlier this week, it's possible the range of deals at such a high LTV will grow further.

Here are few of the better 95% deals currently around:

A good thing?

Is this return of 90% and 95% mortgages a good thing?

Let us know using the comment box below.

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