More mortgage options for those with small deposits
Director of mortgages and finance for Bradley Hall, Lewis Chambers, discusses the mortgage options for those with a limited amount of equity.
Homeowners with a limited amount of equity now have a greater choice of remortgage options, with lenders including Virgin Money, Tesco and Atom Bank improving their offerings for this particular area of the market.
Although there are relatively few remortgage options available to homeowners with only a small amount of equity, there is a much wider choice of mortgage deals for buyers with a 5% deposit.
Recent weeks have seen increasing numbers of lenders launch new deals for first-time buyers and movers with small deposits, including HSBC and Atom Bank.
Virgin Money, for example, has introduced a range of 2, 3, 5 and 7-year fixed rate deals which are available to homeowners borrowing up to 95% of their property’s value.
Fewer lenders offer remortgages up to 95% as they are often perceived as high risk from the lender’s perspective, so having more options will come as good news for those keen to secure a competitive deal ahead of any potential interest rate increases.
Longer term fixes have proved particularly popular in recent months with homeowners who are worried about rising rates and want an element of financial certainty for several years. According to research by Moneyfacts, the gap between the average two and five-year fixed rate mortgage is the smallest it has been since August 2013, so homeowners aren’t having to pay much more for three years’ extra security.
The comparison site also revealed that average two and five-year fixed rates at 95% loan-to-value (LTV) have bucked the trend of rising rates and are lower than at the same time last year, making it more affordable for first-time buyers to get onto the property ladder.
Homeowners keen to take advantage of Virgin Money’s new remortgage deals should bear in mind that if borrowing above 90% of the property value, remortgages will only be available on a like-for-like basis only. No capital raising can be considered on this specific deal.
Most lenders will also have limits on additional borrowing, so they may not allow borrowers to remortgage for debt consolidation, or to raise money for home improvements.
It is also important to remember that rates for those with small deposits are typically higher than those offered to buyers with bigger deposits to put down, so even saving an additional 5% could leave you better off in the long-run.
We always stress the importance of looking at the overall cost of any mortgage deal rather than the headline rate alone when weighing up which deal to choose. Many deals now come with valuable incentives such as cashback or free valuations which can help keep first-time buyer costs down.
Seek professional advice from me and my team, if you need help deciding which deal is best for you based on your individual circumstances.
For more information please call the Bradley Hall Mortgage team on 0191 260 2000.
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