95% Loans Hit Post-Recession High

95% Loans Hit Post-Recession High

The number of mortgages for buyers with just a 5% deposit has surged to its highest level since the recession struck. There were 260 loans available for buyers wanting to borrow 95% of their home’s value in November – that’s an enormous 84% jump on a year ago. And at the same time, the average rate charged on one of the loans fell to 4.12%, the lowest since the credit crisis, narrowing the gap with mortgages that require a 25% deposit, according to mortgage insurer Genworth.

Mortgage lenders are gradually recovering their appetite for risk following the credit crisis. And the surge in mortgages at high loan-to-value (LTV) ratios – that is how much mortgage is owed compared with how much the home is worth – is being driven by the government’s Help to Buy scheme. There are now six times as many mortgages for buyers with just a 5% deposit as there were in September 2013, before the mortgage guarantee element of Help to Buy was launched, when only 43 of the loans were available. The number of deals has increased by 68 in the last three months alone, at a time when competition in other areas of the mortgage market has remained stable or even declined.

95% Loans Hit Post-Recession High

The increased availability of 95% mortgages is great news for first-time buyers and would-be borrowers with small deposits. With the average home hovering around the £200,000 mark, many buyers would struggle to raise the £40,000 needed to put down as a deposit on an 80% LTV mortgage. Not only do buyers now have more choice, but the average interest rate charged on a 95% LTV loan has fallen from 5.27% in November last year to 4.12%, making it more affordable. By comparison, the rate on average 75% LTV mortgages fell from 2.17% to 1.9% over the same time spell.

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Unsurprisingly, the increased availability of mortgages requiring a 5% deposit has led to a jump in first-time buyer numbers, with 86,800 people getting onto the property ladder between July and September. But Genworth warned that despite the growing product range, lending to buyers with only small deposits has actually declined. It said only £1.61bn was agreed with people borrowing between 90% and 95% of their home’s value in the three months to the end of September, 27% less than was lent to this group a year earlier.

Simon Crone, Genworth vice president – mortgage insurance Europe, said: “There is little doubt that the Help to Buy mortgage guarantee has played an important role in rejuvenating the high LTV market. However, beneath the surface, it remains a long way short of full health and there is a danger that what we are seeing is a temporary restoration of appetite from lenders thanks in no small measure to government efforts.”

95% Loans Hit Post-Recession High

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