95% Products - are some lenders easier/harder than others?

Thrugelmir

droiderm wrote: »

I would have thought from an outsiders perspective, that the lender has some additional security with NewBuy? Does this not reflect their underwriting compared to a "normal" 95% mortgage? Or, does the fact it's a new build take away some of that additional security?

The issue is the amount of capital that lenders have to put aside to fund 95% mortgages. 95% mortgages require 6 times the level of capital of 75% mortgages. So lenders need to adopt very stringent underwiting criteria. As you say newbuilds are often worth less. So will take some years for the borrower to inject equity into the property.

macaulays

Yes I can see why they would be fairly stringent with the criteria. I guess one of the main risks is if one uses a newbuy product then needed to move within a few years it's likely (unless you were fortunate to buy in a swiftly improving area) that you would be in a negative equity situation. Do any of the newbuy providers allow "consent to let" on properties to allow a seller to defer a disposal to mitigate that risk?

Thrugelmir

macaulays wrote: »

Do any of the newbuy providers allow "consent to let" on properties to allow a seller to defer a disposal to mitigate that risk?

CTL at a high LTV compounds the risk. As unlikely a borrower will have much equity in the other property either.

CTL is only temporary, i.e. 3 years. So merely kicks the can a little way the road. No guarantee that letting will be profitable either.

kingstreet

Granting consent to let on Newbuy isn't something lenders would advertise.

As it's a Government scheme, I suspect consent to let would not be granted, as it may breach the terms of the indemnity scheme.

I am only speculating though.

macaulays

that's very true,now that i think about it one of the 'eligibility' criteria is that the property is one's main home so that may rule out CtL even temporarily. Presumably you'd have to move to a different product tobe able to do so but what is the highest ltv product around for newbuild that's not newbuy - 80, 85 maybe? You'd have to have made some prefty hefty overpayments to get to those levels if you wanted to be lettable inside of 5+ years I imagine!

RenStar

kingstreet wrote: »

The typical maximum loan to value for a newbuild is 80% to 85%.

There are only limited properties offered on Newbuy and these are selected specially by the developer.

It is getting the 95% that's supposed to be the draw, not that the criteria is in some way easier than for a "normal" 95% mortgage.

That's why 95% lending is difficult regardless of the property scenario.

This isn't actually the case - any builder wishing to take part in the Newbuy scheme cannot limit it to selected plots only, any home under the £500k mark should be eligible if a 5-10% is required. See here: http://www.hbf.co.uk/policy-activities/government-policy/newbuy/2837/newbuy-for-home-builders/ Look under 'Key Selling Requirements'

That said, lending criteria is down to the individual lender so a good broker can advice which lender is best suited to each individual's circumstances. Most of the newbuy deals are available via brokers only though some like Natwest are available direct. In the past few months, the rates have been getting better - see here: http://www.money.co.uk/mortgages/newbuy-mortgages.htm so for people trapped in their homes who wish to move on and can afford to overpay their mortgage to bring their LTV down, Newbuy potentially offers them a way out.

With regards to buy to let, Newbuy can only be used as a main residence; buy to let is not allowed so you won't get consent to let unless if following the end period of a Newbuy product, you switch to a non newbuy product I would imagine.

Lots of information about the newbuy scheme here: http://www.newbuy.org.uk/

HTH.