A rising number of loans covering 95% of a property's value are being snapped up by homebuyers, according to financial website, Moneyfacts.

What’s the latest?

The number of mortgages available for people with only small deposits has jumped to its highest level since the financial crisis.

There are currently 307 loans available for buyers borrowing 95% of their home’s value, the first time numbers have broken through the 300 barrier since April 2008, according to financial information group, Moneyfacts.

The choice for people with only 5% to put down increased significantly this month with 37 new deals launched, as eight lenders re-entered the 95% mortgage space.

There was further good news for people looking for a high loan-to-value (LTV) mortgage, with average interest rates on two-year fixed rate 95% loans falling for the fifth consecutive month to stand at 4.02%.

Why is this happening?

The increase in 95% LTV loans bucks the trend seen in the wider mortgage market, where product numbers have declined for all LTV bands apart from two.

Charlotte Nelson, finance expert at Moneyfacts, said: “Providers know that many borrowers on their mortgage books, who are coming to the end of their mortgage, may want to take advantage of the low rates on offer elsewhere.

“So the introduction of new deals at 95% will give the providers’ mortgage book a new zest for life.”

Who does it affect?

The increase in the number of mortgages for people with only a 5% deposit is good news for first-time buyers, who are most likely to take out one of the loans.

The fall in interest rates on the deals should also help keep monthly repayments affordable, despite high house price to earnings ratios in many areas.

But Moneyfacts warned that the cost of the deals was likely to increase soon, as swap rates, upon which the loans are based, were rising in anticipation of another increase to the Bank of England base rate in the near future.

Nelson said with the cost of fixed rate deals for other LTVs already increasing, it was not a matter of ‘if’ but ‘when’ the cost of 95% deals would rise.

Sounds interesting. What’s the background?

While the number of 95% LTV deals has been steadily increasing, choice is still significantly lower than in early 2008 when more than 400 different loans were available.

Although 95% loans may make it easier for first-time buyers to get on to the property ladder, interest rates on the deals are significantly higher than those charged on mortgages where the buyer has put down a larger deposit.

Banks may also impose tougher lending criteria when assessing affordability.

Borrowers themselves are also more vulnerable to ending up in negative equity if house prices fall than if they had put down a larger deposit.

Thinking about getting a mortgage? Find out what's available here

Top 3 takeaways

  • The number of mortgages available for people with only small deposits has jumped to its highest level since the financial crisis
  • There are currently 307 loans available for buyers borrowing 95% of their home’s value
  • The choice for people with only 5% to put down increased significantly this month, with 37 new deals launched as eight lenders re-entered the 95% mortgage space

You might also be interested in...

* DISQUS *
comments powered by Disqus