95% mortgages

RyanT1992

Hi all,
We’re deciding whether to use the new 5% deposit government scheme to buy, or whether to save for an extra 9-12 months to get a 10% deposit. 

Can anyone give us advice? Assumptions I’ve made (please correct where possible) 

- We won’t be able to borrow as much on 5% as 10%
- Our chances of getting 4.5x our salary on 5% deposit are incredibly low 

Also interest calculators are fairly useful but obviously without going through the process, it’s not tailored to you - but how much roughly extra interest would you look to pay with a 5% deposit in comparison to a 10% deposit?

House cost would be somewhere between 350-450k

That’s what we want to establish, as to whether it’s worth saving for another year (we’ve been saving for many already).

I’ve always been told to not go for a 5% deposit and I’ve got massive reservations about the overall effectiveness of these government schemes, but I’ve got to the point where I wonder whether it’s worth going for a 10% mortgage over 5% now some banks should be lending at that rate. 

Thanks in advance to anyone who can help! 

Barny1979

There is also the risk that with house prices appearing to increase, the gap could get bigger from 5% to the 10% deposit?

Gusta123

I'm in a similar position. A 5% deposit does sound risky, but on the other hand the prospect of spending another year saving while I watch house prices shoot up even more isn't too appealing either.

Based on what Rishi said, it sounds like the government is planning to guarantee the last 15% of these 95% mortgages, so the lender will essentially be exposed to the same amount of risk as they would be for an 80% LTV mortgage (i.e. 95% minus the guaranteed 15%). I'd assume that because of this the rates for these 95% mortgages will probably still be pretty competitive (albeit higher than for a 90% LTV of course), and that the usual 4.5x multiplier would still apply - subject to the specific lender's affordability checks etc.

Of course I may well have completely misunderstood this, so anyone with a better idea please do correct me!!

K_S

RyanT1992 said:

Hi all,
We’re deciding whether to use the new 5% deposit government scheme to buy, or whether to save for an extra 9-12 months to get a 10% deposit. 
Can anyone give us advice? Assumptions I’ve made (please correct where possible) 

- We won’t be able to borrow as much on 5% as 10%
- Our chances of getting 4.5x our salary on 5% deposit are incredibly low 
Also interest calculators are fairly useful but obviously without going through the process, it’s not tailored to you - but how much roughly extra interest would you look to pay with a 5% deposit in comparison to a 10% deposit?
House cost would be somewhere between 350-450k
That’s what we want to establish, as to whether it’s worth saving for another year (we’ve been saving for many already).
I’ve always been told to not go for a 5% deposit and I’ve got massive reservations about the overall effectiveness of these government schemes, but I’ve got to the point where I wonder whether it’s worth going for a 10% mortgage over 5% now some banks should be lending at that rate. 
Thanks in advance to anyone who can help!

@ryant1992

- Obviously this is an educated guess but I wouldn't expect a huge restiction in LTI caps at 95% compared to the already tight limits at 90% currently.

- Impossible to say until we see a few products coming out whether it'll be 4.5x or less. Also depends on your affordability numbers - income, commitments, debt.

- Interest rate premium is again guesswork. In the early days of the last version of H2B mortgage guarantee 95% products, the jump from 90%-95% products was (very very crudely) about 1%. That may or may not be the case this time.

K_S said:

Getting_greyer said:

It's interesting as if someone has 10% deposit.  What would the rate difference be between a normal mortgage of 90% and one of 95% where the government guarantees say 20% of it.  Hypothetical of course. 

@Getting_greyer Looking back at the early days of the H2B mortgage guarantee scheme in 2014, it looks like the 95% LTV mainstream no-fee 2yr rates were between 5-5.5%, 90% LTV around 1% lower and 85% LTV a further ~0.75% less. This is a very crude comparison of course.

- It's important to remember that (to the borrower) these low deposit mortgages aren't "government" mortgages/schemes per se, rather they are just 95% products offered by lenders, that's it. It isn't comparable to the H2B equity loan.

Only you can make the assessment whether to wait for a 10% deposit or try for the 95% products when they come out.

Carrot007

RyanT1992 said:

- Our chances of getting 4.5x our salary on 5% deposit are incredibly low

Regardless of the LTV (my first mortgage was 125% FWIW), going near the limit of the "affordability" is insanity. I would not go over 50% of what they may offer.

Of course your area might force you I guess, but can you not move 10 miles out and get a lot more for less? Certainly can around here.

Thrugelmir

Interest rates for 95% mortgages will remain at commercial levels. No risk reduction involved. As the lender will pass part of this back to the Government for participation in the scheme. The guarantee will be funded. Not borne by the taxpayer. The aim of the scheme is to support the housing market by helping low deposit buyers get onto the first rung of the ladder, not provide cheap finance. 

ukri

Thrugelmir said:

Interest rates for 95% mortgages will remain at commercial levels. No risk reduction involved. As the lender will pass part of this back to the Government for participation in the scheme. The guarantee will be funded. Not borne by the taxpayer. The aim of the scheme is to support the housing market by helping low deposit buyers get onto the first rung of the ladder, not provide cheap finance. 

Did anyone say it’ll be “cheap finance”?

The OP asked how much MORE the interest rate would be compared to 90%. Another poster quantified that in relation to what happen the last time saying it was HIGHER by about 1%.

you are literally the only person on this thread making any suggestion of cheap finance.

clueless_but_curious

ukri said:

Thrugelmir said:

Interest rates for 95% mortgages will remain at commercial levels. No risk reduction involved. As the lender will pass part of this back to the Government for participation in the scheme. The guarantee will be funded. Not borne by the taxpayer. The aim of the scheme is to support the housing market by helping low deposit buyers get onto the first rung of the ladder, not provide cheap finance. 

Did anyone say it’ll be “cheap finance”?

The OP asked how much MORE the interest rate would be compared to 90%. Another poster quantified that in relation to what happen the last time saying it was HIGHER by about 1%.

you are literally the only person on this thread making any suggestion of cheap finance.

I thought @Thrugelmir was helpful to clarify the answer to OP's pertinent point

James-may

In a similar situation myself in that I'm saving for a deposit, and will have 5% by may, but will take til Oct, possibly Jan before I get to 10%.
In that time I will have paid £4k in rent, not to mention the possibility that house prices rise.
Be great if actual details and stuff were released.

RyanT1992

Barny1979 said:

There is also the risk that with house prices appearing to increase, the gap could get bigger from 5% to the 10% deposit?

Exactly. I have to live near London for my job, so the cost of my deposit going from 5-10% isn’t a few grand, it’ll be £20k+ , so every little price rise (which these government schemes do) makes it even more tricky! 

RyanT1992

Gusta123 said:

I'm in a similar position. A 5% deposit does sound risky, but on the other hand the prospect of spending another year saving while I watch house prices shoot up even more isn't too appealing either.

Based on what Rishi said, it sounds like the government is planning to guarantee the last 15% of these 95% mortgages, so the lender will essentially be exposed to the same amount of risk as they would be for an 80% LTV mortgage (i.e. 95% minus the guaranteed 15%). I'd assume that because of this the rates for these 95% mortgages will probably still be pretty competitive (albeit higher than for a 90% LTV of course), and that the usual 4.5x multiplier would still apply - subject to the specific lender's affordability checks etc.

Of course I may well have completely misunderstood this, so anyone with a better idea please do correct me!!

I’ve not read that anywhere, but I’ve also not read into it too much as it seems they haven’t released much info, so you could well be right. I’m guessing the 80% thing doesn’t help in way of mortgage rates? Or do the lenders still view your 5% deposit as a 5% deposit in the same way they used to?