When you desperately want to own your own home, it’s tempting to push the budget, borrow as much as possible, for as long as possible, but is that really a good idea?
High LTV mortgages – are they a good idea?
Prior to the Spring Budget, there was speculation that the government may introduce a 1% mortgage deposit scheme. That did not come to fruition; however, a leading mortgage lender has recently introduced a new product which offers first-time buyers (FTBs) a £5k deposit on homes up to £500,000 – effectively a 99% loan to value (LTV) (mortgage.
The upsides
It is estimated that, last year, the number of FTBs who got their foot on the property ladder fell to 290,0001 – the lowest figure since 2013. Deposits are often a barrier to making a first purchase, so this 99% LTV mortgage is potentially a way for FTBs to enter property market that is more affordable, albeit initially. In the long run, the mortgage will likely have a higher interest rate and will take longer to pay off.
The drawbacks
The newly launched product is not applicable for those buying new builds or flats – both popular choices amongst FTBs. Plus, with house prices still unstable, there is a risk of ending up in negative equity, i.e. the property is worth less than the amount still owed on the mortgage.
If you’re looking to move home this year, talk to us – we can help find the right mortgage for you.
Your home may be repossessed if you do not keep up repayments on your mortgage.
1 Yorkshire Building Society
3 Legal & General
More homeowners with longer mortgages
Rising mortgage rates have pushed homeowners to take out longer mortgages, with a fifth of first-time buyers (FTBs) in 2023 opting for mortgages with terms of 35 years or more1.
In 2021-22, the average age of an FTB in England was 342 meaning that many new homeowners could still be paying for their home when they enter retirement. While it’s understandable that many resort to longer loans to afford their first home, it will cost them more in the long run.
But it’s not just FTBs who are feeling the financial strain; general demand for mortgages with terms of 40 years or more increased by 16% last year3. Similarly, the number of borrowers with mortgages of 30 years or more rose from 41% to 51% between 2021-23.
Your home may be repossessed if you do not keep up repayments on your mortgage.
1 UK Finance
2 USwitch
3 Mojo
Here to help
Small deposit, longer mortgage term, shared ownership, working out the best way to buy your first property isn’t easy. We’re here to help you make sense of what it all means for you and work out the best options for you to get started.
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Your home may be repossessed if you do not keep up repayments on your mortgage