5% equity mortgages have hit the highest level in 10 years. 37 new deals for mortgages with 95% borrowing have brought the total amount of these types of deals to 300, the first time since April 2008, according to data published by Moneyfacts.
100% mortgages, meaning that there was no deposit required, were common before the 2008 crash. These mortgages were frequently interest only, with the capital not having to be repaid. A large proportion of the homes covered by these mortgages were repossessed after the markets collapsed.
According to estate agents Your Move, prices have fallen 2.6% in the past 12 months in London. There has additionally been a fall in the East of England on a month to month basis.
Homeowners in these types of mortgages can be at risk of falling in to negative equity and therefore being unable to remortgage due to falling house prices combined with rising borrowing.
Ray Boulger of mortgage brokers John Charcol says that there is no need to panic however:
“One of the biggest differences between now and 2008 is any high equity mortgages now need to be on a repayment basis,” he said. “While the regulations don’t ban this, the way they are structured means there needs to be a credible repayment plan, so offering interest-only at this level is very difficult.”
Jonathan Harris of mortgage brokers Anderson Harris suggests that the new trend indicates increased interest in the market on the part of first time buyers:
“With a significant gap between property prices and incomes, first-time buyers continue to have trouble raising the necessary deposit to get on the housing ladder,” he said.
“In the past, borrowers were considered to be lower risk if they had a relatively large deposit, but I am not sure that really applies anymore.
“Are people really going to default on their mortgage now that we have more stringent affordability and stress testing on mortgages? Lenders may feel they might as well offer a mortgage with a higher loan to value.”
In terms of providers that offer 5% equity mortgages, the best 2 year rate is offered by Yorkshire Building Society at 3.29%. Yorkshire Bank offers the best 5 year rate at 3.89%.
Are you thinking of making a move this year? Our Mortgage team here at Westminster Wealth can ensure that you receive the most suitable mortgage for your personal circumstances, needs and objectives. Contact us today.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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As house prices fall, number of 95pc mortgages hits post-crisis high