5% mortgages

[Frolicacid]

Just wondering if anyone has any experience of applying for a mortgage recently with a 5% deposit? We’re going on a second viewing on Saturday at a house that needs some work. A smaller deposit would allow us to get the work done a lot sooner.
I’ve had a brief email conversation with our broker, and she thinks it’s a viable option. The asking is 100k under what she calculated we could borrow, so we’re not stretching ourselves too far. We’d just like to get the work done as quickly as possible.
Has anyone got any positive or cautionary tales to share before I get my hopes up?!

TIA.

Wouldn't have got on the property ladder without our 95% mortgage that we secured late last year. Bought our first home and have security for our little ones.
Mortgage payments identical to our last rental - which is good as since the rental has increased in price by £25 per calendar month.

We are just about to exchange.
FTB, 95% mortgage.
Property is in London so eye watering, but still less than our rent each month.
Good luck!

One way is stick to the original plan? How much of a budget are you talking? 30k on credit card pay it off at 0%, you will still get the original ltv interest rate quoted and you can transfer debt on credit cards providing you make the min monthly payments! It's ok for lending for like 3 years ideal for doing something that's wanted but not quite afforded today!

Live in an expensive area of the SE a and our first mortgage was a 95% one on a shared ownership property. We never would have afforded it otherwise. With house price increases we ended up with quite a bit of equity and were then able to move out of shared ownership and get a 90% mortgage. When we got the 95% one we had the best credit ratings and that was sufficient for our lender.

The only thing that I thought worth mentioning is that if you don't have children and plan to in the next couple of years, then when you come to secure a new mortgage rate after your fixed period, lenders will factor in childcare costs. Just something to think about. For that reason we fixed into a 5 year mortgage to cover our childcare years. As it happens I've taken a huge pay cut to go part time. In fact I'm about to have a third mat leave and our income during this period will be 56% of what it was when we took out the mortage. We will still have enough money to pay our bills and have enough left over for everything else (although no luxuries) and we have savings for emergencies, but there is no way a bank would give us a mortgage during that period. Our plan at the end of the 5 years if I'm not earning what I was when we were given the mortgage is to stay with the same lender and fix onto another rate as they don't check income again (some do). Just something to consider.

It's not that long ago that 100% mortgages were pretty normal. I knew a lot of people who bought in the 90's with a 110% mortgage and have ridden the rising market ever since. More sensible folks who waited till they had 20% would have seriously lost out.

Individuals have to make the best choice for themselves. It's the banks and governments who should be regulating.

I misread your post OP . I thought you were moving to a village for donkeys (sounds great!). My DSS has been able to buy with 5% and a less than perfect credit score. Good luck x

Frolic, I think you're doing the right thing to buy a property that is less than the £200,000 you have been approved for. As a FTB there can be many unexpected costs of home ownership so it's good that you won't be overstretching yourself initially.

Did you also know that if you are borrowing 100K you will be paying approximately 100K in interest over a 25 year term? So I would recommend (but please research it for yourself too) to overpay on your mortgage if/when you can to substantially reduce the interest you owe.

We all know what happened next, resulting in the tax payers bailing out the feckless borrowers and the reckless lenders and a whole raft of measures used to keep the banks in business and the property bubble inflated

Meanwhile the vast majority of UK borrowers carried on paying their 95% mortgages comfortably and rode out the correction to house prices over the next few years

Thanks everyone.
I’d rather not go down the credit card route jkl. But, we will have them for back up.

maverick, we have one child. Our childcare costs will vanish if we move to this village. He can attend preschool every day and my mum will have him the rest of the time as she lives there. We would like to ttc number 2 soon, and could definitely afford the mortgage and be able to get a remortgage on my mat pay.

No donkeys, sand, but it does have 2 very lovely beaches.

Overpaying is definitely the plan kate. Once the renovations are done, we will be able to comfortably do so by at least 25% every month.

Frolic, ask your broker what is the maximum you can overpay a month. It may be less than 25%. If it is, the way round it is to reduce your mortgage term from 25 years to say 18 years. However that will mean that your monthly repayments increase so just check you can afford it (by contrast, overpaying wouldn't need to be done every month)

Sall it was actually the 100% mortgages in America that were leant on purpose to people who couldn't afford it. Banks would lend people 100%, aware it was likely they couldn't afford, let the borrowers 'do up the house', then the bank would reclaim a very saleable house. It was a money making scam that contributed to the collapse of the economy due to unethical lending practices, banks purposely lending to people who couldn't afford it.

Currently, all mortgage applications go through rigorous spending and affordability checks - which did not happen before the crash.

Simply lending 95% mortgages does not crash an entire economy. And as the affordability criteria is strict now, lenders check bank statements and income and expenditure, borrowers are much more likely to borrow realistic amounts these days.

So you are totally catastrophising and out-of-touch with current lending practices. It's much harder to get a mortgage these days and 95% can't crash an economy just because they are 95%, its about wider lending and borrowing practices. Which have greatly improved since 2008.

OP I think your plan sounds sensible and good luck!

We got a 5% deposit 2 years ago for £200k anf our interest rate was no higher than for a 10% deposit

We bought our house as a FTB in July last year with a 95% mortgage. We had no problems whatsoever. Ours is with Santander but Natwest we’re also perfectly happy to offer a mortgage to us too.

Got onto the property ladder with a 5% mortgage. In that case improvements were funded from earnings as we went. Aside from a new boiler though it was just replacing kitchen and bathroom. We also had enough furniture so didn't need to buy straightaway. This was fine as the income coming in kept up with the time we had spare to do the work.

Second property we bought in my name only and had a 75% mortgage to stay below the 75% threshold. My husband then borrowed money unsecured in his name to fund improvements. This time the improvements were more substantial and involved knocking down walls and we needed to buy or make furniture. This was less great as husband also had a period of being out of work and the loan payments still had to be made. Overall it actually cost us less to do it this way but I suspect that is very rarely the case.

This is a long and rambling way to say that if you are doing the work yourselves and you have excess income you may want to save and pay as you go or do a combination of both to get yourself into a lower interest threshold. If you are getting others in to do the work then it makes sense to borrow now.

The family across the road from me that just moved in had a 95% LTV. It's very doable. I would try and secure a mortgage before the interest rates rise. They are set to rise as early as May and then a couple more rises up to 2020. A fixed mortgage is the way to go at the moment.

Good luck

We bought in 2013 with a 5% deposit. Interest rates were 4% fur the first 3 years but we are now fixed at 1.8% so pretty cheap.

Oh and btw I'm not a bitter renter, I bought my house decades ago and can't even remember when I paid my mortgage off it was so long ago, so personally I couldn't really care if house prices continue to the moon or collapse spectacularly.

How odd, according to this thread you sold in 2014, and still hasn’t bought anywhere else 2 years later!

www.mumsnet.com/Talk/property/2736495-How-long-were-you-looking-for-your-house

Excellent detective skills @Idrinkandiknowstuff 🕵🏻‍♂️

OP cc are no different to loans provided paid back in full! Have you had a little play on the Martin Lewis Mortgage calculator?? You can check the repayments etc interest rates differences of paying back the odd lump sum!!

We were going to go for 5% but mortgage repayments were really high. We put down 10% and it has been the difference between us being able to save and having absolutely zero money.

We got a 95% mortgage no problem 8 months ago but have to pay a fair bit more a month than we would have done with a 10% deposit (£2200 a month instead of £1850)

We didn't have a choice though, it took us about 3 years to scrape together the £30K we needed for deposit plus stamp duty - just couldn't do it for another 2-3 years with kids!

I should add though - we had a squeaky clean credit record and used the very good advice on MSE.

Pleasebeafleabite - Those 95% mortgage borrowers didn't ''ride it out'' they were bailed out by a whole raft of extraordinary economic measures aimed at protecting feckless, irresponsible, over leveraged borrowers and keeping property prices artificially inflated.... measures that the poorest in society are still paying the price for today.

Oh and Idrinkandiknowstuff , that was a holiday home (again mortgage free) and no I've still not bought anywhere else since, all that time you've dedicated to weird internet stalking and you still get it wrong, what a shame!

they were bailed out by a whole raft of extraordinary economic measures aimed at protecting feckless, irresponsible, over leveraged borrowers

You appear to be confused about the role of the banks and that of the individual. An over leveraged borrower would fall into arrears eventually losing their home. Everyone else would continue to pay their mortgage as normal, not being over leveraged and all.

The banks were bailed out having swapped their liabilities with other banks who did have bad loans on their books. These were worldwide swaps and the vast majority of these counterparties were outside the UK. The measures taken ensured security for UK borrowers, savers and anyone who needed to use a UK bank account

Lots of those borrowing 95% though did not have problems., Plenty had repayment mortgages they paid and pay off in part every month and over time that % reduces that is borrowing because of the repayment mortgage element. Even without it if you are lucky enough to find house prices rise or even if you just get promotions at work as plenty of those who work full time do it tends to work out fine over all or a parent might die or you get a pay rise and save a bit more off and pay it off the loan.