Skipton launches 95% mortgage
First-time buyers have been given a glimmer of hope after Skipton launched a 95% loan to value mortgage. This means buyers only have to stump up a deposit worth 5% of the property's price.
Loans worth up to 100% of a property's value were commonplace up until 2008 but were quickly scrapped once the financial crisis hit and mortgage lenders were forced to tighten their belts.
The Skipton product, launched through Connells brokers, is the only 95% mortgage available where parental help is not required.
Currently, National Counties Building Society offers a two-year fixed rate at 95% LTV with a rate of 4.99%. However, this requires the buyer's parents to act as guarantor. Without them the maximum LTV will be 75%. The product fee is £495.
Alternatively, the Lend a Hand mortgage from Lloyds TSB is also 95%. It has a rate of 5.09% but the buyer will need a 5% deposit along with a 'helper' who is prepared to offer another 20% of the property value (to be held in a special Lend a Hand savings account and on which they will earn 3.80% interest) as additional security.
But for those first-time buyers without the option of using parents' help the Skipton mortgage offers a lifeline. It has a rate of 6.49% fixed for two years and an application fee of £195.
Ray Boulger, senior technical manager at John Charcol, says: "This is encouraging for the market and I do think there's a chance a small number of lenders will follow suit over the next few months."
Loan to value
The LTV shows how much of a property is being financed and is also a way to tell how much equity you have in a property. The higher the LTV ratio the greater the risk for the lender, so borrowers with small deposits or not much equity in the property will be charged higher interest rates than borrowers with large deposits. The LTV ratio is calculated by dividing the loan value by the property value and then multiplying by 100. For example, a £140,000 loan on a £200,000 property is a LTV of 70%.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.