Before a couple of years ago, the idea of a 95 percent mortgage was not something very popular in the market. However, in the last 24 months the number of lenders offering a mortgage with such a high loan percentage has significantly increased. A recent study by Moneyfacts, the financial information provider, has shown that there are nearly 60 deals currently on the market offering such a high rate.
When you compare these with mortgage figures for a year ago, it is very good news for potential borrowers. At the start of 2010, there were fewer than half as many mortgages of this kind available. Yes, on the surface, this does appear to be a good deal for most borrowers.
It allows them to get on the property ladder without having to pay a huge deposit which often prevents people taking that first step. However, scratch beneath the surface, and you begin to see a rather different situation as these 95 percent mortgages are only available to a tiny proportion of everyone who applies. Even if you happen to be in the very small number of people who are able to take advantage of one of these mortgages, it might not actually be financially sensible to do so.
Andrew Montlake is a mortgage broker with Coreco and he highlights why, “Putting down a larger deposit, say in the range of 10 to 15 percent, really does make a substantial difference on the sort of mortgage you are going to be able to get. Larger deposits mean more favourable mortgages, so don’t think that just because you’re entitled to a five percent mortgage that it is the best option to go for.”
It is also the case that if you want to get one of these mortgages you are going to have to have a guarantor. This will often be a parent or grandparent, and they are essentially saying that if you fail to make the payments they will pick up the bill.