A 95% mortgage is as simple as the name would suggest; you are borrowing against 95% of the price of a property, and then you are covering the remaining 5% with your deposit. An example of this is if you looked at buying a property that was worth £150,000 with a 95% mortgage, you would be putting down £7,500 as your deposit and borrow the remaining £142,500 from the lender.
Off the back of the March 2021 Budget, Boris Johnson announced a Mortgage Guarantee Scheme for mortgage lenders, making 95% mortgages more readily available from the bigger high street banks.
This is fantastic news for First-Time Buyers and Home Movers alike, as this scheme will continue running until December 2022. Certain terms and conditions will apply though, which is something your Mortgage Advisor in Lincoln will be able to look at, to see if you qualify.
All our customers who opt to Get in Touch will receive a free, no-obligation mortgage consultation where one of our dedicated mortgage advisors will be able to make a recommendation on the best possible route for you to take.
95% mortgages are usually accessible by both First-Time Buyers in Lincoln & those who are Moving Home in Lincoln. Whilst saving for a 5% deposit sounds like a pretty straightforward concept, you’ll still need to have an acceptable credit score and prove that you are able to afford your monthly mortgage repayments, in order to access a 95% mortgage.
A good credit score is essential in the process of obtaining any mortgage, especially a 95% mortgage. Things like paying any current credit commitments on time, ensuring your addresses are updated and checking that you’re on the voters roll, can all help with your credit score.
Affordability is another one that is important to take note of. By giving the lender details of your income and monthly outgoings (things like your bank statements will be necessary for this) and any pre-existing credit commitments, your lender will be able to get a general overview of whether or not you are able to afford this type of mortgage.
Nowadays we see lots of family members helping each other get onto the property ladder, especially parents looking to further their children’s lives. The way this usually happens is by gifting the person looking to find their home, the deposit required. Known through the industry as the “Bank of Mum & Dad, Gifted Deposits are only intended to be a gift, and not as a loan. The lender will need proof that this has been agreed, before it can be used towards your mortgage.
When looking for a 95% mortgage, you want to make sure you have the right type of mortgage. Each mortgage type works differently, with that choice allowing you to find one that is most appropriate for your personal and financial situation.
Some homeowners and home buyers prefer Fixed Rate or Tracker Mortgages, mortgage types which mean you either keep interest rates at a set amount for the term given or have your interest rates tracking the Bank of England base rates.
Alternatively, you might find that Interest-Only or a Repayment Mortgages are more your style. Interest-Only allows cheaper payments until you need to pay a lump sum at the end (mostly now used for Buy-to-Lets), whereas a Repayment mortgage (a normal mortgage if you’d like) means you’ll be paying interest and capital combined per month.
Seeing as a mortgage is such a large financial outgoing, you need to be prepared and need to be aware. You might find things like higher interest rates, remortgaging difficulties due to less equity and then negative equity all cropping up if you’re not.
There is no need to worry though, as all these can be avoided if you’re savvy enough with your process to begin with. The more deposit you put down for a property, the less risk the lender will see you as.
A larger deposit, of say 10-15%, would not only reduce the rates of interest by a noticeable amount, but would also give the property more equity and reduce the risk of negative equity, thanks in part to you borrowing less against the property.
So, whilst the risks may seem intimidating, planning ahead and saving for a bigger deposit to access something like a 90% or even an 85% mortgage will be a massive help in your mortgage journey and something you’ll be able to reap the rewards from in the future.
Rishi Sunak’s second Budget as Chancellor brought two pieces of welcome news for the property sector as the Government attempts to transform “Generation Rent” into “Generation Buy” to help stimulate the UK economy, namely the new 95% Mortgage Guarantee and an extension of the Stamp Duty Holiday.
The name of this scheme is misleading as not everyone that applies is guaranteed to be offered a mortgage, it is still subject to affordability and credit score. The “guarantee” itself is that the Government will ensure Lenders don’t stand a loss if they grant a 95% mortgage to a customer who then subsequently falls into arrears and is repossessed leaving behind negative equity.
This scheme should in theory give Lenders more confidence to lend even though the applicant only has a smaller deposit to put down. Of course, Lenders never want to repossess someone’s home unless it is the last resort, but if that happens then the new scheme would cover any shortfall.
Lenders have been worried about the prospect of home values decreasing so this measure should alleviate that concern although of course, the chances of negative equity occurring will naturally reduce should property prices increase as a result of these announcements!
The scheme is available to both 1st Time Buyers and Home Movers, it’s available on any property (not just new build) and will run until December 2022. Some major High Street Banks have already signed up to the scheme and it’s likely more will follow later on. It’s still a big challenge for Lenders to cope with the demand they are getting for mortgages due to the difficulties training and supervising staff working from home but they will want to offer as many of these mortgages as they can.
When the Stamp Duty Holiday was launched last year we all hoped life would be very much back to normal by the cut-off date of 31st March 2021 but things didn’t pan out that way as we know. Solicitors are struggling to keep up with the workload and if lots of chains had collapsed then it would have partly defeated the object of the exercise.
Therefore it was good to hear the scheme has been extended to 30th June for purchases up to £500,000 and 30th September for purchases up to £250,000.
The Government certainly sees the property sector as an area that can play a big part in our economic recovery and if you are looking to buy a home or remortgage this year please reach out and we will be happy to advise you.
Whether you are looking to Remortgage or are a first-time buyer, when lenders ask for your bank statements you can expect them to look for various different things. However, their one objective that stands above all, is their job to assess whether you are the sort of person who manages money responsibly and therefore likely to maintain regular mortgage payments.
So, with regards to gambling, what questions do we need to answer in particular?
Whether you have an annual flutter on the Grand National or a regularly use internet betting sites, clearly there is nothing illegal about properly licensed gambling.
With many of the bookmakers advertising on mainstream TV and radio, a lot of people see gambling simply as a mainstream hobby or pastime similar to many others.
However, it shouldn’t be forgotten that even the gambling advertisers urge customers to “please gamble responsibly”. This is the key to bear in mind when applying for a mortgage.
Thus, whilst it is not a lender’s job to tell you how to live your life. How to spend your money or indeed to moralise on the ethical rights and wrongs of gambling. They do have a duty (underscored by mortgage regulation) to lend responsibly.
Lenders need to prove to the regulators that they are making prudent lending decisions. So it isn’t entirely unreasonable of them therefore to expect the people to whom they lend to adopt a similar approach when it comes to their personal finances.
As touched upon previously, it is not illegal to gamble. Just because you have the odd gambling transaction on your bank statements, you won’t necessarily immediately be declined for a mortgage.
It is however, up to lenders discretion as to whether or not these transactions are reasonable and responsible. Thus they will particularly look at the frequency of these transactions, the size of the transactions in relation to the person’s income and the impact upon the account balance.
If these transactions are infrequent small amounts that make no significant impact on a regular credit bank balance, then they are not likely to be regarded as important.
As we’ve seen, basically lenders are looking at your bank statements to show how you manage your money. To help them establish whether this gives them either the confidence that you are financially prudent or the evidence that you are not.
Remember, lenders are financial institutions. They, either directly or as part of a wider group, often sell current accounts, overdraft facilities credit cards and personal loans. So they understand that these things can all play a part in prudent financial planning.
The key for a mortgage applicant is how these facilities are managed. For example, having an overdraft facility and occasionally using it, is not inherently a bad thing; regularly exceeding the overdraft limit – not so good.
Thus, lenders will look for excess overdraft fees or returned direct debits. This is because these would normally show that the account is not being well conducted.
The simple answer is – be sensible and, if possible, plan ahead. Typically, a bank would ask for up to three months of your most recent bank statements that show your salary credits and all your regular bill payments.
Thus, if you know you’re likely to want to apply for a mortgage in the not-too-distant future, try to make sure that you avoid any of the above pitfalls.
Take a break from gambling for a short while and work on presenting your bank account in the best possible light. Your mortgage broker can help you as there are some lenders who may ask for fewer bank statements than others or indeed some may not even ask for them at all.
Most married couples would rather make joint mortgage applications as opposed to a sole name mortgage. Over the years house prices have been on the rise and with house price inflation outstripping wage increases over the years, in most cases, you can only afford a house if you have two salaries coming in.
Maybe you are married and are looking for a specialist to apply for a mortgage. Sometimes there will come a time where an applicant need to make an application in their sole name as one salary may very well be enough. There are also other other reasons why one of the applicants doesn’t want to go on the application. Here we will take a look at some of these.
One of the applicants may have had a credit problem in the past, something like a bankruptcy or a CCJ. This could get in the way of them obtaining a mortgage. With this in mind, providing the spouse or partner is not connected to that issue, then you could possibly take this as an option.
The person looking to do this would need to be careful to try and avoid creating a financial association with their partner. If not, they could risk their credit score being affected by it, harming their chances of obtaining a mortgage themselves.
Couples generally get a lower maximum borrowing capacity, as opposed to if the working applicant took out the mortgage in their sole name. This sort of thing can occur if only one member of the couple is working.
The mortgage calculation can also depend on age. For example, if you have a 50 year old who is buying with a younger partner, then it’s possible that if they have a good income, the younger partner could go down as the sole applicant.
Lenders will look at the type of mortgage you are applying for and the deposit you are able to put down for it. If you have a large deposit, 30% or more as opposed to 5%, this may work in your favour for the mortgage application.
Stamp duty or other tax implications can often be the driving force behind someone opting to take out a mortgage in their sole name.
Some Lenders have stricter rules about married applicants doing mortgages in a joint name, meaning some have to be a sole applicant against their own wishes. The likely reason for this is because they are concerned that this could in some way affect their security in the future, especially if a couple were to split up down the line. Luckily not all Lenders share this unpopular view.
Unfortunately, lots of people at some point in their lives will accrue some debt. Whether this is a lot or a little, it’s sometimes unavoidable due to the situations people find themselves in, often spiralling out of control and into even further trouble. When this becomes a factor in your life and you’ve had to set up your repayment plans with whoever you owe money, you can be left feeling pretty low and like there is very little disposable income left each month for you to spend on yourself.
Some applicants decide to take the route of a Debt Consolidation Remortgage in Lincoln, which we will jump more in-depth with in this mortgage case study.
Julia was a divorcee, living on her own after her children had moved away. Her debt had been building up due to legal bills from the divorce and over the years this just kept going up, having to live on one income with unreliable maintenance from her ex-partner. Soon after her daughter became pregnant and due to her being young, Julia decided that she would do all she could to support them financially, even though she herself was not exactly well-off due to the debt.
With a lot of luck on her side, Julia was able to pay her mortgage off before things got out of hand, so that asset was there to potentially borrow against. Her take-home pay was £1100 per month, and her credit commitments were taking up the majority of this amount.
Though she had not missed any payments on credit commitments, Julia had no emergency fund to rely on. Whilst her credit score wasn’t too bad, she was no longer able to obtain new 0% credit cards to transfer from her existing balances.
She was recommended to me to see if there was anything that could be done to improve her financial life, which in turn would hopefully create a more positive mental state for her with no more debts to worry about.
When we met, Julia was feeling stressed and depressed. She had cut back on any additional spending she was doing to treat herself, and it was evident that she was desperate to take ownership of her financial situation before it got beyond the point of no return.
We did take a look at the possibility of Julia taking out a personal loan, but the debts had gotten too high for that. With no family members who were able to help her out, downsizing was not a viable option. We came to the agreement that the right way forward would be to remortgage the house to pay off the debts and reduce her outgoings.
We managed to find a Lender to meet Julia requirements and take her case. Admittedly though, due her low income, it was hard to find a lender who would lend her as much as she needed. We managed to get her an Agreement in Principle turned around in a respectable amount of time, but unfortunately her formal mortgage application was declined.
The reason this happened is because the Underwriter who assessed the situation felt that because Julia had been paying off her cards with new cards but leaving the old accounts still open. When she had transferred balances, there was a high risk that she could rack up the debts again and end up in the same position.
Julia was understandably gutted by this.Though she understood why this had happened, she also felt that she had accepted she had a problem, and that getting in touch with us was one step closer to fixing the situation. Julia felt that their risk was minimal – the loan to value was under 40%, she had never missed any payments, and if the remortgage was successful, she could be a massive £500 better off per month.
Whilst that is correct in theory, clients don’t always appreciate the perspective the Lender is taking. They really don’t want to take a property into possession if they can help it. as it reflects poorly on the numbers they are required to report each year. In the event of repossession, they then have to go through the long and difficult process of securing the property, insuring it, marketing it, selling it, and paying the surplus of equity (if any) back to the previous owner, in this case Julia.
With this in mind, if there is any reasonable doubt at all, an Underwriter has the discretion to decline an application, even if it is within their own published lending criteria.
We always take great pride in getting our recommendation right the first time, but this one sadly didn’t work out that way due to the Underwriter’s adverse comments at the full application stage. However, we knew this remortgage wasn’t as risky as the Lender had made out, and proceeded with hunting for a deal that she would get accepted on.
Julia seemed deflated and almost defeated, but we went back to the drawing board to find a different Lender. We were incredibly fortunate enough to find one for her and armed with the information we had from the previous Lender, we were able to provide better supporting comments. We’re glad to say this resulted in a successful outcome for Julia!
This wasn’t a step that Julia took lightly. She has now secured debt that was previously unsecured, though she may end up paying back more interest overall, depending on how quickly she can pay off her mortgage.
However, on a short term basis, this has worked out very well for her. She now has had the burden of debt relieved from her shoulders, her credit score has improved, and she can save a little more each month than she previously could.
The savings we were able to help her make amounted to over 50% of her net take-home pay monthly and it has changed her life hopefully for the better. Upon completion of the Remortgage, Julia cut up all her credit cards except for one she could use in the event of a financial emergency. Finally, her financial and everyday life is back on track.
If you are like Julia struggling with major or minor debt but are a Homeowner with equity, please get in touch to discuss your options, ideally before the situation gets out of control. The earlier you take back control of your finances the better you will feel and the quicker your life can get back to normal. We offer Debt Consolidation Remortgage Advice in Lincoln & surrounding areas.