95 % Mortgages - the +/-'s

macaulays

Afternoon Folks,
Myself and other half have recently relocated to London from Aberdeen and currently paying a small fortune for a rental property. As a result of the increased rent values in London over what we are used to "up north", we have thought we should try and gain a picture of how far away the prospect of purchasing might be should we choose to go down that route.

We hadn't really considered this before so haven't as yet made any particular efforts to put ourselves in a financial position that would be suitable for buying but I have a couple of early stage queries that i hope some of you experienced people may be able to answer!

I have seen some information about the NewBuy scheme offering the possibility of 95% lending on participating developments. Having had a look at some of the information available, the interest rates on the NewBuy products available, while obviously higher than the next tier down at 90% for "normal" purchasing are reasonably competitive when compared to "normal"/non-NewBuy 95% products, the few that exist.

I am currently thinking through the logic as to whether;

i) we attempt to put ourselves in a position to buy as soon as possible, our only realistic option being using the NewBuy scheme (don't think we'd meet the criteria for the Firstbuy option and we'd be pressed to come up with another 5% or so of typical prices in London in less than an additional year or two) so one has to factor in the cost of a 95% product and the early years drop in value that a new build suffers.

or

ii) we think about buying further down the line (year or few?), in the interim save up a more significant deposit so we would both consider more competitive 90% products and also be able to access the whole market, not simply new build. The downside of this is that one is still paying rent for that period of 12, 24 etc months so this significant "cost" has to be factored in.

What would you do? Every day seems to have more news stories that sound like the property market and lending options are going to drastically shift one way or the other (depending on the article you read) which means there isn't really a consistent mood that I have picked up on regarding the appropriateness or otherwise of buying at the moment.

I have seen plenty of comment both for and against the Newbuy scheme, some saying madness due to cost of newbuilds/reduced bargaining power and some suggesting it's a valuable way of getting onto "the ladder" at this tricky time if you accept the limitations of the product.

My other query was whether anyone knows if NewBuy specific mortgages are any easier/harder to be approved for than an open market 90/95% given the differing risk to the lender?

Finally, I wondered if anyone knew whether one is better using any spare income to put toward a higher deposit or to reduce existing commitments e.g. credit cards etc; is there a trend among lenders that would suggest one of these routes is more useful than theother in improving one's chances of being approved or is it "6 and half a dozen"?

Any thoughts on the above ramble greatly appreciated : )

Typhoon2000

Well prices in London is one one place where it seems to be going up. So you need to work out how much you can save after rent and see how that compare with how much you think property is going up in your area. That will give you am idea if you will be in a better position in a year or two of if you will be better off buying now at at a higher rate.
Having said that, having a larger deposit will mean you can buy older propert as well, no just those that qualify for new buy.

jamesml

In terms of where to put your money - if your credit card costs more than you would make in interest, pay your debts off first. I don't know how much effect credit card debt would have on your mortgage application - it depends.

I'm about to exchange on a new build on the NewBuy scheme. I'd rather have gone for a normal mortgage if I'm honest, but it was a tough one - we could afford the repayments and would qualify for a higher mortgage, but we didn't have the full deposit for it. Equally, we could afford a cheaper property on a 90% mortgage, but didn't find much we liked. We've ended up in a property we really like which is probably more of the sort of property we had in mind as a second/third house. Rates are slightly higher and obviously we owe more, but we've fixed for a longer period to ensure we can repay it.

Not all developers will offer NewBuy, and not all lenders offer it either. To make it worse not all lenders will accept all developers - so have that conversation early. We almost had the situation where the development we liked wasn't going to be with the lender we wanted, which made it significantly more expensive.

Watto30

Hi,

I don't often post on these boards, am more of a reader really but just saw your post and just wanted to let you know that there are other options out there, although few and far between at the moment there are 95% mortgages available so you are not tied to the newbuy scheme only, it could mean that you would need to go through a broker to get one of these but could be worthwhile looking into and may give you more scope than looking at just the newbuy scheme, I know this as have just gone through it myself and with an excellent broker managed to secure a 95% mortgage with a competitive interest rate so it is possible. With regard to the credit card issue I am not sure what the lending criteria and lending multiples are like for the providers of the 95% mortgages currently out there so can't advise on that but will say my credit history is not exactly great but both partner and I have no debts so that might have helped.

A few things I learned when starting out on this path that may be of help is that if you are going to approach a broker for mortgage help then don't make any credit applications or attempt to apply for a mortgage yourselves first as if you do happen to get rejected then this does not help on your credit files and puts off other lenders, try and get your credit files with experian and equifax as clean as possible, it helps if you put yourselves on to the electoral roll at your new place, make sure you dont miss any payments for anything if you can avoid it etc

One other point is have you thought about other area's just outside of London? I guess it depends on where you and your other half need to commute to but rent and house prices are considerably less once you step out of London and transport links not too bad at all, I commute in daily from Essex into London and travel time is 50 mins door to door each way but pay a lot less than I would if I lived in London with a similar commute time.

Best of luck