When people explore purchasing their first homes, they are often dissuaded by the mortgage process.
Since most consumers cannot purchase a home outright, they must qualify for a mortgage provided by a bank or other lender.
Getting on the property ladder is not easy, particularly for buyers who do not have enough money to deposit their new homes.
However, first-time buyers should not give up on the dream of homeownership because it is possible.
Mortgage Trends
Housing prices have dropped recently, but many UK residents still have trouble becoming homeowners.
A mortgage shortage and large deposit requirements represent obstacles to first-time homebuyers. Despite this, the number of people purchasing their first home is expected to increase from September 2012 through September 2013.
University graduates relying on financial assistance from their parents to get onto the property ladder are driving this trend.
Over the summer, many homebuyers began facing a more pronounced two-tier mortgage market. Those who could afford a large deposit sometimes paid half of the mortgage rate of those who could not.
This gap is growing, so as homebuyers push their loan-to-value ratio to a maximum of 95 per cent, they are also paying hundreds of pounds more each month for their mortgages. Less equity coupled with potentially unaffordable mortgage payments represents a concerning trend.
Lenders charge more for a low-deposit mortgage because they incur a higher risk of loss if the price of housing falls. Since the summer, the cost gap has been expanding. Banks offer lower interest rates because they can borrow less expensively.
However, only the lowest-risk homebuyers receive these attractive interest rates. New capital rules have affected the level of reserves that mortgage lenders must allocate to low-deposit mortgages. For a loan of the same size, a lender must place one-fifth more capital in reserves for a 95 per cent mortgage than for an 80 per cent mortgage.
This means that for every five loans the lender makes to homebuyers with five per cent deposits, it can make six loans to buyers with 20 per cent deposits.
Many current homeowners are forced to pay a standard variable rate mortgage because they cannot afford the deposit for a suitable remortgage.
Large Deposits Represent Large Obstacles
The requirement for large mortgage deposits has affected the entire housing market, including HMO mortgage lenders and semi-commercial loans. Nearly six in ten adults responding to a July 2012 Halifax survey noted that a lack of deposit was their largest barrier to home buying.
That same month, the government published results from a national housing survey revealing that only one in every four prospective homebuyers followed through by applying for a mortgage or got anywhere near securing auction house finance. The remainder gave up because they did not believe that they had enough money saved for a deposit or thought they were too heavily in debt.
Lack of savings is even serving as a barrier for second—and third-time homebuyers. Falling housing prices have eroded the value of their home equity. Some must revert to special schemes like NewBuy, which is backed by the government. Under this, buyers can purchase newly built homes with a deposit of only five per cent. The government and the property builder share some of the risks, removing some burden from the lender.
More than a dozen building firms participate in NewBuy, and Woolwich, NatWest, Halifax, and the Nationwide Building Society also offer the loans. Scotland began a similar scheme in September called MI New Home. Residents may purchase a home valued up to £250,000 with only five to ten per cent deposit. More than 15 builders, including Merchant Homes, Bellway, and Lovell, are already participating in this scheme.
Getting Help From Parents
The bank of mum and dad can come in handy for first-time homebuyers. Parents gift money to children that is then applied to the mortgage deposit. According to Halifax research, one-third of parents of adult children have provided funds to get their offspring onto the property ladder. The average contribution is currently £12,846. While some parents do this willingly without attaching any strings, others worry about not having the money available for their own retirement.
The Family Deposit mortgage from Market Harborough Building Society is one solution. It requires that the homebuyer make at least a five per cent deposit and combines this with savings provided by relatives. The deposit and savings must equal one-quarter of the value of the property.
Savings are locked in a special account for a five-year period, during which it earns interest. The building society may tap this savings if the mortgage suffers a loss. In exchange, the borrower receives a discount of 1.5 percentage points from the variable mortgage interest rate. Lloyds TSB offers a similar loan called Lend a Hand. Families can also collaborate on offset deals that use parental savings against the mortgage obtained by a child.
Availability of Lenders at Higher Loan to Value Ratios
In the UK, obtaining a mortgage or loan with a high loan to value (LTV) ratio can be challenging, especially if you have bad credit. However, there are lenders who specialise in offering 90% and 95% LTV loans to borrowers with less than perfect credit. Understanding your options and how these loans work can help you secure the financing you need.
Understanding Loan to Value Ratios
The loan to value ratio is a key metric used by lenders to determine the risk associated with a mortgage or loan. It is calculated by dividing the loan amount by the value of the property. A higher LTV ratio means a higher risk for the lender, as the borrower has less equity in the property.
Interest Rates and LTV Ratios
Interest rates typically increase as the LTV ratio increases. This is because lenders perceive a higher risk with loans that have higher LTV ratios.
| LTV Ratio | Interest Rate |
|---|---|
| 80% | 3.0% |
| 90% | 3.5% |
| 95% | 4.0% |
90% Loan to Value with Bad Credit
Securing a 90% LTV loan with bad credit is possible, but it requires careful consideration of your options. Some lenders specialise in offering high LTV loans to borrowers with poor credit histories.
Bluestone Mortgages 50000 Mortgage
Bluestone Mortgages offers a 50000 mortgage option for those with bad credit, allowing for a 90% LTV ratio. This can be an ideal solution for those looking to buy a home with a smaller deposit.
Darlington Building Society Secured Loans Online
Darlington Building Society provides secured loans online with competitive rates for borrowers with varying credit profiles. They offer flexible terms and can accommodate higher LTV ratios.
95% Loan to Value with Bad Credit
Obtaining a 95% LTV loan with bad credit is more challenging but not impossible. These loans are typically offered by lenders who understand the unique needs of borrowers with poor credit.
Pepper Money Poor Credit Mortgage
Pepper Money offers a poor credit mortgage product that allows for up to 95% LTV. This can be a viable option for those looking to purchase a home with a minimal deposit.
Loans Bad Credit Instant Decision
For those needing quick access to funds, loans bad credit instant decision can be a solution. These loans often come with higher interest rates but provide the necessary capital swiftly.
Secured Loans Direct Lenders
Working directly with lenders can sometimes offer better terms. For those with bad credit, secured loan bad credit direct lender options are available.
Homeowner Loan Bad Credit
Homeowners with bad credit can explore secured loans bad credit options. These loans use your home as collateral, which can help secure better terms.
Debt Consolidation Loans Calculator
Using a debt consolidation loans calculator can help you understand your options and the potential savings from consolidating your debts.
Debt Consolidation Secured Loans
Consolidating your debts into a secured loan can simplify your financial management and potentially lower your interest rates. Explore debt consolidation secured loans for more information.
Loans for Paying Off Credit Cards
Using loans to pay off credit card debt can be an effective strategy. Look for loans for paying off credit cards that offer lower interest rates compared to your current credit card rates.
Best Loan for Consolidating Debt
Finding the best loan for consolidating debt requires research and comparison. Look for loans with favourable terms and rates that suit your financial needs.
Bluestone Mortgages Mortgage with Debt Consolidation
Bluestone Mortgages offers options to combine your mortgage with debt consolidation. This can be a practical solution to combine your debts into a single monthly payment, explore their mortgage with debt consolidation options.
Loan for 25k
For those with good credit, loan for 25k options can provide favourable terms and interest rates.
Understanding the Challenges
While high LTV loans provide opportunities for those with smaller deposits, they come with challenges. Higher interest rates and stricter terms can be expected, particularly for borrowers with bad credit.
Improving Your Chances
To improve your chances of securing a high LTV loan, consider the following:
- Work on improving your credit score by paying bills on time and reducing outstanding debts.
- Save for a larger deposit to lower the LTV ratio.
- Research and compare different lenders to find the best terms.
Secured Loans vs. Unsecured Loans
Secured loans are backed by collateral, typically your home, which can offer better terms compared to unsecured loans. However, the risk of losing your home if you default is a significant consideration.
Securing a high LTV loan with bad credit is challenging but possible. Understanding the options available and taking steps to improve your financial situation can increase your chances of obtaining the financing you need. Explore the links provided to find the best loan products for your needs.