According to financial information company Monefacts, 5% deposit mortgages are currently cheaper than they have ever been in the history of their recording. In rates terms, the average interest rate for a 95% mortgage on both a 2 year fixed period and a 5 year fixed period are at an all-time low.
Moneyfact’s figures show that the average 2 year fixed rate stands at around 3.09% and a five year fixed product is around 3.39 which are incredible figures for lending considering you only need a 5% deposit to potentially access them. To put this into perspective, at the same time in 2019 rates for 95% mortgages stood at 3.25% and 3.57%, not an astronomical difference but it could mean everything to a first-time buyer on a budget. There are also a much larger number of 95% mortgage products on the market that your broker can help you choose from. There are currently 5,315 products made up of a combination of 2-5 years fixed rates, a huge increase compared to last year at the height of the pandemic when there were only 8!
Commenting on this encouraging trend, Moneyfacts finance expert Eleanor Williams has said: “It may be that, following the end of the stamp duty holiday which had kept the property market buoyant for much of 2021, providers are now focusing on enticing first-time buyer business, which has often been considered the life blood of the housing market. Due to rising house prices, mortgage affordability concerns and until recently limited product choice and higher rates, taking that first step onto the property ladder may have felt a distant possibility for many, so these positive figures may provide some hope to those who dream of owning their own home.”
Moneyfacts does however point out that the average rate for a two-year fixed product across all LTV with people putting down larger deposits did move up over the month, from 2.29% to 2.34% as did the average rate for a five-year fixed from 2.59% to 2.64%.
Although we think that these 95% mortgages rates are fantastic, we at Oportfolio think it is extremely important to consider the possible implications that getting a 5% deposit mortgage could have. For first time buyers certainly, you risk the possibility of property prices potentially dropping. If you secure a mortgage for almost 100% of the value of the property and the property value drops by 10% hypothetically you would be in what is called ‘negative equity’. Although not the end of the world, being in negative equity means that you owe the mortgage lender more money than the property is worth which could leave you in a tricky situation when it comes to selling the property and moving in the future.
If you or someone you know is thinking of getting a 95% mortgage, we highly recommend that you contact to speak to one of our friendly and knowledgeable advisors on 02088771169 who can help you make the right decisions.