Saffron BS launches innovative 95% LTV mortgage

Low deposit mortgage from Saffron BS looks at applicant's rental payment history to check affordability.

In the aftermath of the credit crunch, it has become increasingly difficult for first-time buyers with small deposits to get a decent mortgage. The days of getting a 100% loan-to-value mortgage are long gone and most lenders require at least a 20-25% down payment.

In fact, according to the Council of Mortgage Lenders, the average loan-to-value of the 18,100 loans that were approved for first-time buyers in May this year was 80%. On a £150,000 home that's a deposit of £30,000!

Those unable to afford this sum are limited to Government schemes, like NewBuy that requires them to only purchase newly-built homes, or guarantor mortgages, which mean relying on family members vouching for them with a promise to pick up payments should anything go wrong.

Luckily there are more 95% LTV mortgages starting to appear that are giving first-time buyers back some autonomy and choice. Saffron Building Society last week relaunched one that looks an intriguing choice.

Saffron’s game changer

Saffron's 95% first-time buyer mortgage comes with a rate of 6.49% fixed until the 29th of February 2016 with a small arrangement fee of £195.

The rate is a long way from the super-low deals offered to borrowers with small deposits. But the mortgage is quite unique in the way it judges borrowers.

The Saffron mortgage is aimed at first-time buyers that have been renting for 12 months or more. The lender uses rental history to determine whether you’re a credit worthy individual instead of income multiples, which can be very simplistic.

As well as rental payment history, the building society will look at the amount of disposable income you have and your ability to afford the mortgage along with standard credit history checks.

The only catch is that you have to be buying a property in the Essex, Hertfordshire, Suffolk, Norfolk or Cambridgeshire areas that the building society serves.

Credit where credit’s due

There are loads of potential first-time buyers that are capable of paying a mortgage as they have been handing over similar sums in rent already. If you have been managing to pull this off for a significant amount of time, a mortgage shouldn’t be too much of a major adjustment to your budget, especially with a fixed rate deal. In fact it could be cheaper!

For example, if you took out a £100,000 mortgage over 25 years, the repayments would be £674.58 a month if you went with the Saffron 6.49% deal. The average rent paid in the country is £718 according to latest figures from LSL Property Services. So in basic terms buying now is cheaper than renting.

If more lenders took this approach, those banished to long term renting may be able to get a foot on the ladder.

Key difference

So what other mortgages are available that offer this sort of respect to first time buyers instead of infantilizing them?

It can be hard to find a 95% LTV mortgage especially with a high street bank. The best places to look are with building societies or to speak to a mortgage broker who will have access to all the best deals.  

According to financial information website Moneyfacts, there are currently 64 mortgages available with a 95% LTV compared to just 35 in August last year. So there are a few out there, but you may have to sift through the guarantor, NewBuy, First Buy, Save to Buy and other naff schemes to find a real gem!

Here are a few I found on my hunt:

95% LTV mortgages

*Only available to first-time buyers in selected postcodes

90% LTV mortgages

In contrast there are over 200 more mortgages for a 10% deposit on offer at the moment. So if you have more saved up or can wait a little longer in order before buying, you have a far wider range of options.

*Only available to existing customers

The dangers of a high LTV

Remember that buying with a high LTV mortgage does present some risks.

You could end up in negative equity if the property loses value, leaving you in a difficult position if you want to move or remortgage. So it's important to think about where you want to be in a few years' time.

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.

Use lovemoney.com's innovative new mortgage tool now to find the best mortgage for you online

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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