95% LTV mortgage advice
As of March 2021, 95% loan-to-value (LTV) mortgages are once again available for the purchase of residential property in the UK.
Fox Davidson are now taking enquiries from clients with a 5% deposit – don’t forget, you can still benefit from reduced stamp duty rates in 2021.
Buying a house now requires substantially less cash and this scheme will be attractive to first-time buyers who had previously only been able to borrow up to 85% of the property value.
With the deposit now down to 5% and reduced stamp duty costs, buying a property is once again a reality for many people.
Key points of the 95% LTV mortgage scheme:
- 5% deposit
- Maximum property value £600,000
- Available to first-time buyers and home movers purchasing a property.
- Income-based on affordability but likely to max at 4.5 x income.
The government 95% mortgage scheme
The government wish to turn generation rent into generation buy.
To help this become a reality, they have dropped stamp duty until June and subsequently will increase the nil rate band until later in the year.
In addition, they have guaranteed 95% loan-to-value lending. The guarantee is for lenders and gives them the backing they need to lend once again to first-time buyers and home movers who only have a 5% deposit.
Fox Davidson secure mortgages across the market and have started to place lending with lenders at 95% loan-to-value. Initially, some of the mainstream high street lenders have agreed to release the scheme but we are seeing other lenders coming to market also.
How much can you borrow on a 95% LTV mortgage?
One of the main issues for first-time buyers is affordability. 95% mortgages are expected to lend around 4.5 x income.
For employed, this is gross annual income minus any deductions and credit commitments.
For the self-employed, this is based on net profit, and for limited company directors, the most advantageous method is to use salary and share of net profit (as dividends are often lower than net profit).
The scheme is not going to help those who already have enough deposit to buy at 90% loan-to-value but cannot afford the mortgage, instead, it will unlock the ability to own a property for those with good incomes in comparison to property prices.
According to Rightmove, the average house price in Bristol is £343,144. This means that you would require a deposit of £17,1571.
To secure a 95% LTV mortgage of £325,986, you would need an income of £72,441 as a sole or joint applicant combined. However, according to PayScale, the average salary in Bristol is £31,000, therefore, even on a joint basis to buy an averagely valued property in Bristol, you would need an above-average salary.
However, there are over 1,400 properties in and around Bristol priced below £100,000, so the scheme is welcome news for many.
With offices in Bath, Bristol, and Exeter, we at Fox Davidson expect the uptake to be very high, which will give another much-needed boost to the property market.
For guidance on how much you can borrow, rates, repayments, or anything else mortgage-related, give one of our 95% mortgage brokers a call on 0117 989 7950 or send us an email at firstname.lastname@example.org.
Can you get a mortgage with a 5% deposit?
Following the government budget at the start of 2021, Rishi Sunak announced support for lenders so they can once again lend at 95% loan-to-value.
As of March 2021, 95% loan-to-value mortgages are available on residential property to both first-time buyers and home movers.
It’s therefore now possible to secure a mortgage with a 5% deposit.
Can a mortgage broker get you a bigger mortgage?
A mortgage broker understands the criteria of hundreds of mortgage lenders and using a mortgage broker will usually allow you to secure a bigger mortgage than going direct to one or two lenders.
Different mortgage lenders treat income and outgoings in different ways.
A mortgage broker will place your mortgage application with the right lender for your mortgage requirements.
How many lenders are offering the 95% mortgage scheme?
Initially, five lenders have committed to lending at 95% loan-to-value, but we have seen other entrants to the market.
The issue will be applying to the right lender at the right time as we expect lenders to pull the scheme and release it again to manage business volumes.
With many house buyers wishing to take advantage of the reduction in stamp duty in 2021, applying to the right lender the first time is critical in securing your mortgage offer in a timely manner.
What is the criteria for a 95% mortgage?
The main criteria for 95% mortgages will be for an applicant to be in gainful employment or self-employment and to be able to afford the mortgage they are applying for.
Lenders are expected to max the income to loan calculation at 4.5 x income.
Applicants will need to have good credit with no CCJs or defaults.
How does the government 5% deposit scheme work?
The government will insure lenders against certain losses they incur due to lending at 95% loan-to-value.
The government backing gives lenders the confidence to lend again at 95% loan-to-value.
Can I use family gifted money as my deposit?
You can use gifted money as your 5% deposit for your 95% loan-to-value mortgage.
Lenders will also accept savings and the sale of other assets to generate your 5% cash deposit.
Do lenders accept sale of bitcoin and cryptocurrency as a deposit for property?
Some mortgage lenders are now happy to accept the sale of cryptocurrency as a deposit for house purchase in the same way they would accept the sale of stocks and shares.
With Bitcoin now seeing institutional investors from across the globe, it should be treated in the same way stocks and shares portfolio would.
A mortgage is a loan secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.