Is a 95% mortgage a bad idea?

[CaseyBarn]

So…been renting for 10 yrs.
Did own a property but ex secretly got a loan against the house so when we split, there was nothing left. Now remarried but both had had bad break ups where we lost our houses and had no deposit to buy one so had to rent.
DH was left in considerable debt by his exW and that got paid off last year (she moved back to Canada and never got in trouble for taking loans in his name!)
We have managed to save 10k so far which is only 5% of local average house price.
The 95% mortgage scheme ends in December, do we buy this year with a 95% mortgage OR spend another 2 years saving for 10% to get a 90% mortgage.

worth knowing we are both in our 40s so worry time will make us ineligible for any mortgage!

TIA

From my experience it's not a bad thing at all.

I got a 95% mortgage which, naturally, came with a higher interest rate. After 2 years of building more equity in the house I was able to remortgage at a lower interest rate, lower monthly payments and knocked 5 years off my term.

It's a step on the property ladder and it's an investment and 100% yours.

I would choose a 95% mortgage over one of these shared ownership schemes any day.

Good luck! 🎉

another vote for do it and then over pay if you can on the mortgage for extra security.

Yes do it. We got our house just over 2 years ago with a 5% deposit. When it came to remortgage our house value had gone up so much that we got a new remortgage deal with 15% LTV. So glad we didn't wait to save more of a deposit.

Also, be aware that your stamp duty won't be first time buyer rate as you've owned before, so you'd have to pay 3% or something like that.

@IcecreamForAlcohol I hope house prices will stagnate due to lending criteria but I really don't think they will reduce. I'm no expert so I could definitely be wrong. If lending criteria gets stricter for a couple of years, I just think people will stay put where they are for a bit.

I bought in 2016 on a 95% mortgage.

Sold in 2020 and had made 40k profit on a house I only bought for £120k.

Brexit vote happened as I was buying and I remember panicking that the economic climate was going to cause problems.

If you’re planning a move that will last more than a couple of years then even potential negative equity will be ridden out eventually.

I'm thinking it will reduce demand amongst first time buyers. Banks may well stop giving buyers with small deposits the big mortgages they've been able to get recently. This may have a downward effect on prices.

I don't know either I'm just speculating based on what I've read.

I have a 95% mortgage, it's much cheaper than the rent was.

I'd get the mortgage now. As you've been renting, you've no doubt been used to paying above the cost of a mortgage anyway.

As others have said, overpay (even as little as £50 a month makes a big impact) and you'll find that your LTV rate will be looking great in no time. Then you can remortgage at a better rate.

And don't worry about going into negative equity. You're not planning to move. I've been in and out of negative equity twice on my house but it's not a problem as I don't want to move or remortgage.

Does the 10k include money you'll need for solicitors fees (around 1-2k), any stamp duty as neither of you are FTB, survey fees etc?

Same here!

What rate would interest rates need to be for it to be more expensive than renting?

@IcecreamForAlcohol we had a 2.95% mortgage on a 318k loan. Repayments we're 1,342 a month compared to 1,500 we were paying in rent. Mortgage rate now 2.99% and it's still around that as more capital. I guess it depends on how much you were paying as renters.

I'm buying at the moment. Mortgage will be £800, renting would be £1,200. That's at 2.4%.

I'm putting 50% deposit down.

I agree with the majority. If you can buy something you'll be happy to stay in for a good while, it would be silly not to, yes you could keep renting & saving, but you might as well be paying off your own mortgage & gaining capital. I'd overpay as much as you can/are allowed to. 5% of a house in equity us still better than 0%renting

We had a 5.4% interest rate on a 95% mortgage in 2007. Now we’ve borrowed more to buy a bigger house but on 2.1% so repayments are only slightly more than previous much smaller house. The point is, the 95% mortgage got us on the ladder and the profit from the home was our 25% deposit for our next home. I never thought we’d afford anything bigger than our old 3 bed terrace but the market was on our side. If you can afford the repayments then that’s all that matters (you’ll also find that the “perfect” house is always just a little bit more than you can afford so decide what you can compromise on and what you can’t. Good luck op!

Its not just interest rates you need to consider. What about cost of living rises? Utilities, basic food shopping, fuel etc etc are all going up drastically.

You may be able to afford those mortgage repayments now. You may be able to afford them with a few interest rises. Can you afford the cost of living rises on top.

It may be that you can structure your mortgage to make payments more reasonable than rent BUT when you rent its easy to downsize quickly to fit within your budget, even if it may not be what you want in the long run. If you have a house and mortgage hanging around your neck whilst in money trouble, its 100X more difficult to downsize quickly without getting yourself into troubles.

Dont just consider the mortgage payments. There are a lot who are giving historical advice about how well they have done who havent lived through anything like the storm brewing over the next 12-18mths

I think it should come down to: is your rent going to be more than your mortgage repayments? If so, buy.

We got a 100% mortgage 23 years ago, it was the only way we could afford to buy. Have overpaid on it, moved etc. It worked very well for us.