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95% Mortgage - Advice Please

Discussion in 'Home and Garden' started by m@rty, Sep 3, 2019.

  1. m@rty

    Wise Guy

    Joined: Jul 5, 2006

    Posts: 1,409

    Location: Glasgow

    Currently back at home with parents after renting for years and saving for a deposit for my own home, however I've got itchy feet already and have started looking at 95% mortgages to get on the ladder a bit quicker.

    Has anyone went down this route and if so would you recommend it for a first time buyer?

    Any advice / pointers greatly appreciated!
     
  2. DarkHorizon472

    Mobster

    Joined: May 16, 2007

    Posts: 3,159

    The less equity you have in a house all things being equal the more interest & fees you pay. Also you have a greater risk of negative equity. If you are happy with the terms offered then this is not an issue. Just be careful as always to allow for repayments if interest rates rise a fair bit higher, the mortgage provider can calculate this for you on the spot.
     
  3. alexakasloth

    Soldato

    Joined: Aug 13, 2004

    Posts: 7,367

    Location: Sussex

    Can I afford to buy website is good for seeing how much mortgage payments would be if they were to rise.
     
  4. Semple

    Soldato

    Joined: Mar 5, 2010

    Posts: 5,655

    Only you know your financial circumstances.

    At 95% LTV you'll only have access to the worst rates on the market.

    If that is your only option, I would fix for 2 years and focus on maximising overpayments. Then when you come to remortgage, hopefully you'll have overpaid enough to drop down to the 85% or 90% LTV bracket.
     
  5. Pudney

    Soldato

    Joined: Sep 6, 2005

    Posts: 5,427

    Location: Essex

    We did on our first home purchase, but we were confident we were in a strong housing market and would be for at least the medium term, plus both our incomes were always going to go up. Fixed for 2 years over 35 year term and with about the only provider who would lend to us.

    2 years later we remortgaged at better than 75% LTV, having not made any overpayments during the previous 2 years and shortening the term to about 22/23 years.

    It's a gamble really and depends on your circumstances and location.
     
  6. keylion

    Gangster

    Joined: May 17, 2003

    Posts: 271

    Location: Lancashire

    Unless you've seen something you really want I'd wait it out and save more cash as unless the area in which you are looking is outperforming the market then the chances are prices aren't going to rise, they may even fall a bit in the next year or so given the current climate.
     
  7. ShadowMan

    Wise Guy

    Joined: Oct 18, 2002

    Posts: 1,513

    We are about to fix on 2 years at 95%. We are releasing some equity to carry out work On the house we are buying. We are currently in what was brand new and the new one is 50years old and showing it’s age (cosmetic and minor stuff really).

    In 2 years we expect the house to have risen due to the works and hopefully natural market rises meaning we can remortgage at a lower rate with much better LTV. 95% is a stopgap based on requirement rather than a long term plan so I won’t fix on it for long.
     
  8. ZG002

    Capodecina

    Joined: Jul 22, 2004

    Posts: 10,202

    Location: Up north in Sunderland

    We bought with 95% 3 years ago. Rates weren't too crazy tbh.

    After two years we hit a lower LTV and renegotiated for a better rate.

    Should be under 75% next year.

    If you do your home work, and know you can afford it then it's not too much of an issue.
     
  9. Bickaxe

    Sgarrista

    Joined: Nov 8, 2013

    Posts: 7,915

    Location: Fareham

    Depends on the mortgage terms offered.

    No matter what anyone tells you, nobody can predict the property market over the sort of term you should be considering a 95% mortgage.

    Can you afford it for the next 25 years?
    Can you afford it if it increases by £300 a month?
    If so, go for it and remortgage later.
    If one of the answers is a No, keep saving.
     
  10. cheesyboy

    Capodecina

    Joined: Dec 7, 2012

    Posts: 11,858

    Location: Gloucestershire

    We bought at 95% 12 years ago. We were lucky that, when our initial 2 year fix ended, I took the jump onto a variable tracker (0.89% above Base), only to see Base rate drop from about 5% down to 0.5% in very short order.

    Still have that tracker now, albeit supplemented by a smaller (about 3/5ths vs 2/5ths split) fixed rate, which we took out when upsizing.

    I'd have no issue with taking a 95% mortgage now: as long as it's affordable for you, with wriggle room in case of rates going up by the end of your fix (very unlikely for anything other than a small jump). You'll be able to get cheaper rates in the future as you pass the 90%, 80%, 70% boundaries, so don't fix for too long.
     
  11. m@rty

    Wise Guy

    Joined: Jul 5, 2006

    Posts: 1,409

    Location: Glasgow

    I'm in a good position to be able to overpay and would also be fine if interest rates were to increase.

    Seems like it might be an option so will look into it further and speak to a mortgage advisor.
     
  12. ristac

    Hitman

    Joined: Aug 18, 2011

    Posts: 560

    Location: Northampton

    It also depends a little on what the average price is where you are looking. A 95% or 90% mortgage is minimal difference on a house costing £100k but jump up towards London and a £400k house and the average person would do well saving a 5% deposit yet alone 10%
     
  13. Mercenary Keyboard Warrior

    Sgarrista

    Joined: Aug 4, 2007

    Posts: 9,842

    Location: Wilds of suffolk

    Its not an issue really.
    Your just balancing numerous things, you pay more for 95% as the risk is still quite high for the lender.
    Plenty of people have taken 95%s and never seen an issue.

    With housing appreciating over time as long as you see out the dips you are fine. The best way to get on the ladder is just after a market crash, but unless you are an outright cash buyer it can be difficult, chains go slow and fail etc.

    Rather than overpaying at the start initially build a buffer, get yourself 3-12 months bills money tucked away, then start overpaying if your inclined. The 3 - 12 depends on your view of how long it would take you to get a suitable job. Don't be one of them that has no money to cover redundancy / unexpected bills.
     
  14. BUDFORCE

    Wise Guy

    Joined: May 3, 2012

    Posts: 1,324

    Very solid advice.
     
  15. Psycho Sonny

    Caporegime

    Joined: Jun 21, 2006

    Posts: 31,079

    When i bought my first home I went for 21 year mortgage. They had given me the option as low as 19 years.

    I will have 16 years after my first 5 year fix ends.

    I should when I remortgage be saving a substantial amount in interest as I fixed for too long when rates were high but I still overpaid by quite a lot. They have gotten lower since even though the rates stayed the same (it went down then back up again). My LTV is going to be much lower.

    You should plan to pay it off ASAP but with flexibility. I see people now going for 35 year mortgages and I just think they are now stuck paying that debt and likely double the value of the home (due to interest) and lucky to see any rise in value.

    If you could take a car over 35 years we would all be driving lambos. Be sensible buy small pay as much off as quickly as you can then move up the ladder when you have a chunk of equity with the same plan again. Don't extend yourself make it comfortable as possible.
     
  16. Admiral Huddy

    Don

    Joined: Feb 17, 2003

    Posts: 29,362

    Location: Chelmsford & Broadgate

    Apart from the rates, with house prices dropping 15 months in a row, you may risk owing negative equity to the lenders and having been there in the early 90s, it's not a great situation to be in.
     
  17. MrPotato

    Hitman

    Joined: Mar 5, 2017

    Posts: 753

    Location: Cambridge

    At least for Cambridge area, it was worthy. Got a 95% mortgage about 3 years ago. I would say that for the first 2 years, about 60% of the monthly payments were just interest, but as the mortgage was the same as my rent at the time, at least I was paying something that I'm able to decorate and enjoy as it's my own.
    Meanwhile, the house was priced about 10% cheaper than the likes, just because of a neglected garden and a horrid cream/magnolia paint and dark staircase. Sorted in about 2 weeks of work and few hundred pounds in paint and accessories. Last evaluation, about a year ago, the property was worthy slightly more than similar properties without a modern/fresh look.
    In your situation, you have the choice to stay at your parents and save a bit more, but unless you're able to save substantially, the house prices may increase faster than your savings.
    Just to have an idea, for similar price of my four bedroom mid-terrace, needing some updating would allow me just a newly built two bedroom mid-terrace, slightly smaller garden and potential to troublesome neighbours now and then, as a lot of those two bedroom houses in my area are a first step for new couples and most of them move after few years as family grow, so a nice neighbour may not stay there for too long.