95% mortgages are back!

Following the government’s announcement in the budget on 3 March 2021 that they will support 95% loan to value mortgages for launch in April, some mortgage lenders have in advance of this have launched some 95% mortgages over the last couple of weeks. This is fantastic news especially to first time buyers. It means if you buy a property for £200,000 you now may only need £10,000 deposit.

Why were 95% mortgages withdrawn from the market?

90-95% mortgages were withdrawn in March 2020 when the first UK lockdown occurred. In fact, back in March 2020 many lenders put their maximum loan to value at 85% with some initially limiting it to 55% or 60% loan to value! Lenders did this for a number of reasons; these reasons included that fact that physical valuations couldn’t take place, lenders were also concerned that potential mass unemployment could bring a crash to the property market, plus with mortgage lender staff having to be relocated to work from home rather than large corporate offices they were not able to process as many mortgage applications.

At the same time self-employed applications required manual underwriting which put further strain on capacity and lenders therefore to manage the number of applications focused on the lower loan to value mortgage business. It also meant that lenders that did try to lend at 90% loan to value when most lenders had withdrawn from this market were inundated, and quickly had to withdraw their higher loan to value deals to manage their percentage of business at the high loan to value.

It was only around November/December in 2020 apart from some exceptions that lenders were offering 90% loan to value mortgages. This is still a stretch for many first-time buyers. Having to save £20,000 as a deposit on a £200,000 property for example if you haven’t got family that could help with the deposit is a massive ask. It meant many prospective first-time buyers were unable to buy their first home.

Why are 95% mortgages being launched now?

Whilst the government had launched the initiative in the March 2021 budget to support 95% mortgages (by guaranteeing the difference between the lenders appetite for risk loan to value and 95% should the mortgage holder not pay their mortgage payment and have it repossessed) some lenders were planning anyway to offer 95% mortgages without the government’s guarantee. This is because mortgage lenders are now strongly supporting 90% mortgages and as there is confidence in the housing market some are happy to extend that to 95%.

Is everyone eligible to get a 95% mortgage?

Not necessarily. Most of these mortgages are available to first time buyers only, some exclude lending on flats, and some also exclude new build flats or houses. Lenders are particularly wary of lending on flats as we are seeing some down valuations on flats especially in London at present.

I’m just really pleased that these mortgages are back after a year of absence, especially to help first time buyers get on the ladder.