Saffron launches 95% LTV deal for first-time buyers
Saffron Building Society has launched a 95% loan-to-value (LTV) mortgage deal for first-time buyers, offering respite for hopeful would-be homeowners with small deposits.
The building society's 'rent to buy' mortgage will be available to first-time buyers who have rented for 12 months or more.
Alongside checking their credit history, Saffron BS will look at the renters' track records to determine their ability to keep up with similar level monthly mortgage payments.
John Eastgate, spokesperson for Saffron BS, says that high rental costs and inflation have prevented many prospective homeowners from building up big enough deposits.
He says the 'rent to buy mortgage' will help those who haven't managed to secure a large deposit but are capable of making the monthly mortgage payments:
"We know that there are many potential first-time borrowers who are capable of supporting a mortgage as they have been paying these amounts already in rent but are 'frozen out' of the market by the large deposits required."
However, the deal is not cheap, but comes with a rate of 6.49% (repayment only) and is fixed until the end of April 2015.
David Hollingworth, spokesperson for London & Country, says: "The rule still holds true that the bigger the deposit the better the choice but there are some encouraging signs for first-time buyers."
However, Hollingworth welcomes the move.
"Slowly but surely the options for those with smaller deposits is beginning to open up with more lenders offering rates to 90% loan to value and even a few options at 95%."
"The more deals that are launched the better the level of competition which will ultimately lead to better availability and keener rates."
A number of other 95% deals have crept into the market. Skipton Building Society offers a two–year fixed rate at 5.99% with a £195 fee. Yorkshire Bank has a 95% three- year fixed rate for first-time buyers at 6.99%.
And Nationwide has recently opened up the possibility of 95% mortgages to existing customers who have made regular savings into their Save-to-Buy account.
The Saffron BS deal is available at branches, by phone and through mortgage broker John Charcol. Saffron Building society will also waive its £195 fee to direct applicants who apply up until 31 July.
Are you trying to buy your first home? Read our five tips to get you on the property ladder.
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%.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
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.