5% Government Guarantee mortgages

justinsrival

Hi everyone

Before the pandemic, we were accepted for a 10% mortgage but pulled out of the purchase as the service charges/list of works were as long as your arm! 

We are restarting our search, and have seen a few dream properties that, with our deposit, would mean we would have about a 5-8% deposit. The properties we have seen are freehold and the area we are looking at is extremely fast paced.

I've seen some old threads about the assumed risks of the government guaranteed 5% scheme before it went live, but nothing about them since they have been out. 

We're financially pretty sound, and would be able to afford overpay £250-£500 each month on the mortgage once we are in there.  We're planning to overpay to decrease the LTV as soon as we can. We have immaculate credit reports - no defaults, late payments, etc. 

Would someone be able to explain what these products would look like and what the risks are with a 95% LTV? What could we do to lessen these risks, if we can't increase our deposit in time to get from 5 to 10%?

Is there anyone currently on one of these mortgages who are able to describe their experience?

K_S

@justinsrival If you're referring to the 'H2B mortgage guarantee scheme', to the borrower, it's works in exactly the same way as a non H2B mortgage guarantee 95% LTV product. There are no additional risks just because it's an H2B mortgage guarantee product. I hope that makes sense.

justinsrival

Thanks K_S 

So I guess my next question is what are the risks to a buyer of a 95% mortgage? Im in an incredibly steady and secure job so assuming I could continue to meet the payments, I wouldn't lose the house if prices crashed etc?

[Deleted User]

only real risk of house price drops is if you need to sell in a low period.  only having a 5% swing before you are in negative equity means you are move likely to be hurt by it.    If your house price plummets and you dont want to sell it then it doesnt matter as vast majority of stats show that house prices will always recover if you hold on to the property (very minor local exceptions to this obviously).  

justinsrival

Thank you!  Feeling more optimistic now.  Fingers crossed we get an offer accepted!

Mahsroh

You say 5% to 8% so if you can squeeze closer toward the 8% then although you'll be a 95% LTV product your general risk of price drops / negative equity is immediately less, plus if you can then afford to overpay as you say then you'll work quite quickly to increase your LTV, so the simple question is  can stomach the higher interest rates from going to a 95% LTV product? If so then go ahead and do it. 

We briefly looked at 95% Mortgages when we looked at a potential fixer upper and would've need more upfront cash, but the rates put us off personally (this was last spring / summer though and I don't know what sort of rates lenders are offering now)

Incidentally, we bought with a 90% Mortgage. It took 6 months from offer to completion and in that time the lender has adjusted their valuation in line with HPI. According to them our LTV is now 86% and we've only made one repayment thus far! I know the House Price Index could've swung it the other way, but just demonstrates how fluid it is! 

justinsrival

Thank you Mahsroh 

What sort of rates were you being offered?

Mahsroh

At the time when I looked online from memory it seemed to be around the 4% mark (from memory). Worth having a look now though (have a quick scan on one of the online broker websites like L&C Mortgages or something as they scan the whole market for offers) as I know generally since we looked Mortgage rates have improved. 

Mahsroh

Just had a quick look myself and they have come down quite a lot from last year. Best rate you can get at the moment is 2.29% with Yorkshire Building Society which is pretty good really for 95% LTV. 

If those rates were available at the time we looked we may have given it more thought! 

justinsrival

I've seen and as long as the rate is under 3% I would be extremely happy!