MSE News: Mortgage guarantee scheme extended – but should you get a 95% mortgage?

MSE_Kit

Homebuyers with small deposits will continue to have access to Government-backed support after its 'mortgage guarantee scheme' was extended this week for another year. But even with the difference in cost between mortgages for those with a 5% deposit and those with a 40% deposit at its narrowest in over 10 years, is it wise to take out a 95% deal? We explain your options.

Read the full story:

'Mortgage guarantee scheme extended into 2023 – but should you take out a deal with just a 5% deposit?'

If you haven’t already, join the forum to reply.

MattMattMattUK

MSE_Kit said:

Homebuyers with small deposits will continue to have access to Government-backed support after its 'mortgage guarantee scheme' was extended this week for another year. But even with the difference in cost between mortgages for those with a 5% deposit and those with a 40% deposit at its narrowest in over 10 years, is it wise to take out a 95% deal? We explain your options.

Read the full story:

'Mortgage guarantee scheme extended into 2023 – but should you take out a deal with just a 5% deposit?'

If you haven’t already, join the forum to reply.

No, it is insanity. The property will likely loose more than 5% value over the next year putting one in immediate negative equity, it may well lose 10-20% and take 5+ years to recover. I am not sure 5% mortgage deals should ever have been allowed, but they certainly should not be in current circumstances. 

JMA74

Whats the alternative if you want your own space and you'll be in the place long term?
Rent?  - is this a waste of money? 
Stay at home? - not everyone's ideal situation especially if they are in a relationship or have kids

When is a better time to buy?  Presumably once the market has dropped but when is that likely to be?

House prices (for the most part) will go up even if they go down in the short /medium term.   If its a long term purchase then does it matter if value drops? 

silvercar

Back in the early 90s you could get 105% mortgages, so the lenders were giving you more money than the property price in order to fund the legals/ stamp duty/ some furniture etc or in some cases allowing remortgages following a drop in prices. People who bought on these deals were fine in the long term as eventually house prices went up to cover the gap and life returned to normal. It meant that people who would otherwise be in a difficult situation could continue with their plans. The only major loser was Northern Rock as a lot of these mortgages were a NR product called "together" mortgages, the together being a secured loan at about 80% and an unsecured loan of up to 25%.

MattMattMattUK

JMA74 said:

Whats the alternative if you want your own space and you'll be in the place long term?
Rent?  - is this a waste of money? 
Stay at home? - not everyone's ideal situation especially if they are in a relationship or have kids

Do what many others have done, first do not have kids before you have bought a property, secondly rent at the bottom of the market so that you can save as much as possible, third, do not buy at the top of a boom. 

JMA74 said:

When is a better time to buy?  Presumably once the market has dropped but when is that likely to be?

At the back end of the next year or early 2024 will probably be closer to the bottom than now, but now really is not the time.

JMA74 said:

House prices (for the most part) will go up even if they go down in the short /medium term.   If its a long term purchase then does it matter if value drops? 

Yes it does matter because if one is in negative equity firstly mortgages get more expensive and secondly even if you plan for long term growth you do not aim to buy at the top of a boom. If you buy once the market has dropped 15% then you will be in a far better position five years after than than if you bought at the top of the boom before it drops. 

MattMattMattUK

silvercar said:

Back in the early 90s you could get 105% mortgages, so the lenders were giving you more money than the property price in order to fund the legals/ stamp duty/ some furniture etc or in some cases allowing remortgages following a drop in prices. People who bought on these deals were fine in the long term as eventually house prices went up to cover the gap and life returned to normal. It meant that people who would otherwise be in a difficult situation could continue with their plans. The only major loser was Northern Rock as a lot of these mortgages were a NR product called "together" mortgages, the together being a secured loan at about 80% and an unsecured loan of up to 25%.

They carried on well into the 2000s, I know two people who used them in 2006 before the 2007/8 crash and they were a disaster, they bought at the top of the top of the market, borrowing more than the property was worth and were unable to remortgage due to the negative equity and debts (from the unsecured part), the were a total mess for them. 

K_S

I didn't realise this had got extended but am happy that this is the case. I recall seeing notifications from a couple of large lenders about transitioning to non mortgage-guarantee 95% LTV products so assumed this was coming to an end as planned.

Always good to have more choice in the market, especially for FTBs with small deposits.