95% Loan to value bonanza
Posted on 21 July 2011 by
Two new innovative FTB only mortgages available up to 95% LTV have been launched this month, one from Saffron B S and the other from Newbury B S.
The Newbury mortgage is a Family Offset with an initial rate of 3.95%. This is a 0.5% discount off its SVR for 3 or 5 years (Newbury has one of the lower SVRs amongst building societies). There is no arrangement fee and the ERC is only 1% in 3 or 5 years respectively, but unlimited ERC free part repayments are allowed. The maximum loan is £300,000.
One or two family members must deposit a total of 20% of the purchase price with the building society and because this is an offset mortgage no interest will be paid on this deposit but the FTB is only charged interest on the net 75% mortgage. Affordability is calculated on the whole 95% loan but monthly payments are collected as if it was a 95% LTV mortgage, although interest is only charged on the net 75% mortgage. The effect of this is that the mortgage is paid down much quicker. For example on a 25 year term 3% of the capital is paid back in the first year, compared to 1¾% which would have been paid back had the payments been based on a 75% LTV mortgage. Assuming no movement in the property value this means that the LTV will fall to 75% in the 8th year, much quicker than with a normal 95% LTV mortgage. Once the LTV is down to 75% the family members’ savings can be released if required.
Although the family member(s) providing the 20% deposit are giving up the interest they would have earned this is a very tax efficient way to help the FTB, especially if the family member(s) are 40 or 50% taxpayers. As the FTB is saving at least 2% p.a. by paying a rate relevant to a 75% LTV mortgage rather a normal 95% rate they could, if they wish, afford to be generous to the family member providing the deposit if the family member has the cash available but can't really afford to sacrifice the interest they would have earned, perhaps because it is a grandparent using their savings to supplement their pension.
This mortgage is only available from John Charcol on a national basis, but is available direct from the lender and through other brokers for properties within Newbury’s local branch area.
The innovative feature on the Saffron mortgage at 6.49% fixed to 30/4/15, which has an arrangement fee of only £195, is the way affordability is calculated. The maximum loan is £500,000. Saffron are calling this the ‘Rent to Buy’ Mortgage and will use the prospective buyer’s rental payment history, which must cover a period of at least 1 year, as evidence of ability to afford an equivalent monthly mortgage.
Prospective FTBs who have been told by other lenders they can't afford a mortgage with lower monthly payments than their rent will see this common sense way of calculating affordability as a breadth of fresh air. As an indication of purchasing power someone paying £1,000 a month in rent with a 5% deposit would be able to buy a property for up to £166,700 with this mortgage, resulting in a mortgage of £158,375 on a 30 year term. If two people who have been renting separately want to buy together the combined rent will be used to calculate affordability.
This mortgage is only available direct from Saffron on a non advised basis and from John Charcol on an advised basis.
To find out more, call us on the usual numbers.
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