Anderson HarrisMarket Insight
Are 95% mortgages really making things easier?
While the Government has tried to encourage more accessible mortgages, buyers need to be mindful of the conditions and implications that come with them.
When the pandemic hit in the spring of 2020, the housing market briefly came to a standstill and banks stopped offering high loan to value mortgages. This was largely in anticipation of a housing market crash that never came. In reality, the market remained closed for just a month. Bolstered then by the introduction of the stamp duty holiday, it has been a frenzy of activity ever since.
Cautiousness of the banks
When the market reopened, it did not return with the full range of pre-pandemic mortgage products. There was nothing available at the 90% loan to value level for most of 2020 and certainly nothing at the 95% level from March that year. The highest loan to value products available from lenders during 2020 were 85%. Also the rates of many of these were almost double what they were before March 2020.
90% products started to be reintroduced towards the end 2020 but the 95% range didn’t materialise at all. Trying to rectify this, and make mortgages more accessible, in his 2021 Spring Budget the Chancellor announced the Government would support the banks to reintroduce 95% mortgages. Some lenders had also decided that they would bring these products back themselves – but at a price.
At the lowest rate point pre-pandemic, the 95% mortgages available were typically offering a 3% – 3.8% rate with a range of options available. The most popular were 2-year fixed options.
When 95% mortgage products returned to the market in 2021, the first options available were not part of the Government scheme and the majority of options available were for longer term fixed rates.
When you consider the market for these products is usually first-time buyers purchasing a small property (or a 1 or 2-bedroom flat if they’re in London), a 5-year fixed rate can become quite a burden. The current product range is potentially tying many into long fixed-term contracts, which are not always right for their circumstances and plans.
The blend of the 95% products’ return and the stamp duty holiday is currently fueling some buyers to rush into purchases that may not be right for them – just to take advantage of the support currently on offer.
The devil’s in the detail
The 95% mortgage products also come with specific lending criteria that need to be met if you are to obtain them. These include lower income multiples, higher credit scoring thresholds and capped maximum loan sizes depending on the type of property.
As more options return to the market such criteria is becoming slightly more relaxed. It does mean, however, that for a lot of people (especially those in London where many first-time buyers are stretched to the maximum of their affordability and most of the property available in their price range is flats), the options are still really limited if there are any options at all.
Light on the horizon
As more providers return to the market with higher loan-to-value (LTVs) offerings and more 95% options become available, we expect to see rates start to creep down. That said, these rates are still much higher than where they were pre-pandemic, but they are cheaper than those at the start of 2021.
With the base rate still at 0.10% and 2-year 90% mortgage rates starting at 2.88%, the banks’ margins are still very high. By way of a comparison, consider that the base rate pre-pandemic was at 0.75% and 2-year 90% rates were at 1.89%.
Seek professional advice to get the right deal for you
While it’s good to see the return of 95% mortgage products in the market, the current breed do come with many conditions and rates are still high.
Looking ahead, we believe rates in the higher LTV part of the market will reduce over the next few months. It’s very important though that those considering these mortgages seek professional advice. This will help them to ensure they find a product which works for them not just now, but also in the years ahead.
Contact our team of specialists on tel. 020 7495 6633 or email firstname.lastname@example.org.