A HIGH street bank has made a major mortgage change that will help first-time buyers with small deposits make their first step on to the housing ladder.
TSB has launched a deal that will allow buyers to purchase new build properties with a deposit of just 5%.
PAThe new deal will mean buyers need just a 5% deposit[/caption]The expansion of its loan-to-value (LTV) ratio to 95% for new-build properties makes it amongst the most generous on the market right now.
And the move could help those with limited funds get on to the housing ladder.
TSB had already offered those buying older homes the ability to take out a 95% LTV mortgage, but it had not previously offered the deal to those buying new-build houses or flats.
The LTV ratio is the amount of money a buyer borrows, compared to the value of the property.
So, with this deal, first time buyers can borrow up to 95% of the total value of the home.
This means if the home you want to buy is worth £200,000, you would only need a deposit of £10,000.
David Hollingworth, associate director of communications at L&C Mortgages, said: “This is a welcome extension to criteria from TSB and should allow more options for those considering a new build property and could help boost how quickly they can buy.
“Of course, anyone buying any property with a small deposit could be subject to a heightened chance of negative equity if prices slip back due to a move in the market. However, as long as there’s no need to sell and the mortgage is still affordable, it should be possible to ride out blips in prices.
“There can be something of a ‘new build premium’ to be aware of. If you need to sell and there’s an almost identical brand new home available then it may be harder to get the same price. However, those who are buying for the longer term should see that fade with time and smooth out any ups and downs in the market.”
While a 95% LTV deal means you’ll need a lower initial deposit buyers will often face paying a higher interest rate on the amount borrowed, which means they’ll end up paying more in the long term.
With a 95% LTV product TSB is offering an interest rate of 5.69% for a fixed two-year mortgage and 5.39% on a fixed five-year mortgage.
A fixed mortgage means you pay the same rate of interest for the entire term regardless of what happens to the wider economy.
In contrast to the deals offered with a 5% deposit, those who have a 15-20% deposit would have an interest rate of 5.04% on a TSB fixed two-year mortgage or 4.64% on a fixed five-year mortgage.
So, if you can afford to put down a bigger deposit you will be better off in the long term.
TSB has also extended the amount it will lend on shared ownership homes to 95% LTV.
At TSB interest rates for shared-ownership start at 5.49% for a zero-fee, five-year fixed product, including £500 cashback, and experts have stressed the importance of looking at all options before deciding on a product.
Nicholas Mendes of mortgage expert John Charcol, said: “First-time buyers looking at high LTV mortgages should also explore the range of schemes available to help overcome deposit or affordability barriers. Many lenders offer specific products, and schemes such as shared ownership which can provide alternative routes onto the property ladder.
“Speaking to a mortgage broker can be invaluable, as they have access to a wide range of lenders and can help buyers find the best deal based on their individual circumstances. A broker can also advise on alternative schemes that might be more suitable and ensure buyers understand the long-term implications of their mortgage choice.
“While a 95% LTV mortgage can be a lifeline for first-time buyers, it is important to fully understand the financial commitment and potential risks. Buyers should carefully assess their affordability, consider future rate rises, and weigh up whether saving for a larger deposit might be a better long-term option.”
TSB is not the only bank offering low-deposit mortgages and Nationwide will allow people with a deposit as low as 5% to borrow up to six times their income when agreeing a five or 10-year fixed-rate.
And, last week The Sun revealed how first time buyers can get on to the housing ladder with no deposit at all.
Mortgage rates had fallen slightly following the interest rate cut earlier this month, however brokers have warned they could be set to rise again following an unexpected untick in inflation.
The increase could cause a double-whammy of bad news for home buyers with the amount of money paid in stamp duty also set to increase from April.
If you’re struggling to get on the housing ladder The Sun last week revealed the cheapest places in the country to buy a home.
Other options for first-time buyers
Alongside low deposit mortgages, there are other schemes to help first-time buyers move into ownership.
Shared OwnershipInstead of buying the whole property, through shared ownership schemes you can instead buy a portion from as little 10% and pay rent to a landlord on the rest.
Buying just a share of the home means the deposit and mortgage payments are much smaller.
Joint borrower, sole proprietorThese mortgages take into account the income of another person to help boost affordability. The additional applicant – typically a family member – is liable for the mortgage, but they do not own the home.
As with other family help options, there needs to be a large degree of trust. It is a good idea to work out a plan of what would happen in the event that you were struggling to repay the mortgage as all parties will be liable.
A mortgage broker can help you to find lenders offering these deals.
First Homes schemeIf you live in England, the First Homes scheme allows you to buy a property up to 50% below its market price.
The discount stays with the property, so is available to any future buyer too.
To use the scheme, you must be a first-time buyer and aged 18 or older.
You must earn less than £80,000 a year before tax or £90,000 if the property is in London.
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
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