95% Mortgages - what's the catch

nakmeister

I'm looking into whether a 95% mortgage is a viable option. I found this page on money.co.uk:

http://www.money.co.uk/mortgages/95-mortgages.htm

It details lots of 95% mortgages, some of which have a really high rate (5.5%, 6% etc) which I get, as these are riskier for the banks. One company has a lend a hand mortgage, where a family member puts an extra 20% in a savings account, that makes sense too. There are a couple of the smaller building societies however which have low rates, around 4%, and one even offers up to 120% LTV. I don't understand, what am I missing, what's the catch?

Any help would be greatly appreciated!

callmechar

high interest rates, especially variable rates after 2 years (which REALLY put me off a 95% mortgage)

If a family member helps it could be security on their home so not really a 95% mortgage per se - as the security is coming from elsewhere. Its the 95% mortgages where no help from parents etc that have high int rates

kingstreet

nakmeister wrote: »

one even offers up to 120% LTV

It's probably an existing borrower negative equity product.

brit1234

nakmeister wrote: »

what's the catch?

Negative equity when you come to remortgage is the big one.

AskMeAnother

Yeah, your main risk is the possibility of remortgaging at the end of your initial deal. If properties have not increased in value in that period you would still be looking for 95% mortgages.

While it seems the mortgage mortgage is becoming more competetive at the higher loan to values, there's nothing guarnateed of course.

Similarly, the mortgage lender you go with now are not obliged to offer you a new deal, but there's a reasonable chance they will.

I would say as long as you keep it conservative with your borrowing amounts and don't push it to the limits, you should be ok. Just make sure that you're happy paying a higher rate (7% for example) - if you can afford it at that rate then the risk is reduce in my opinion.

somethingcorporate

5.5% - 6% are not really high rates, least of all at the most risky lending LTVs. These were the norm for 80-85% mortgages not 5 years ago.

brit1234

somethingcorporate wrote: »

5.5% - 6% are not really high rates, least of all at the most risky lending LTVs. These were the norm for 80-85% mortgages not 5 years ago.

What happens to LIBOR when Greece defaults? Then the pressure goes to Ireland and you can see rates going higher even if BOE rates still at 0.5%