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10% deposit mortgages return, but with high barriers to entry

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Despite all of the negativity floating around in the housing sector recently, the good news for those in the market for self employed mortgages is that the average deal on the High Street for a 90% loan-to-value mortgage is cheaper today than it was at the time before the economic downturn.  There are also more products becoming available than when the 90% LTV deal all but disappeared from the High Street.

Hard to believe that just four years ago few of us had a clue what measures of austerity we would face in the fallout from the global monetary crisis. We were happily paying 6.61% for a 10% deposit mortgage – compared to the interest on our credit cards, which we had in abundance, it was cheap. Compare that to today’s average deal, however, according to moneyfacts, and we see that the new average of 5.44%, despite the recent trend of interest rates rising, is conceived as expensive, given that the base rate remains at 0.5%.

What has changed, beyond all recognition, is how easy (or should I say difficult) it is to qualify for one of those cheaper mortgages, compared to pre-credit crunch times. Not only in the way applicants for self employed mortgages are assessed, but also actually finding a 90% LTV mortgage for which to apply, given a self employed status.

In general, pre-credit crunch, there were 761 90% LTV mortgages available on the High Street before it all went Pete Tong. At its worst, after banks realised that they needed more assurance, that drop tenfold to just 76 10% deposit mortgages available.

That figure has picked up over the last five years, according to the report. As the number of 90% products has been increasing, thus increasing competition, it has caused the afore mentioned decrease in interest from 2008. Indeed, there are almost 300 90% LTV mortgage products on the High Street in the UK, now. But both Louise Holmes of moneyfacts and a spokesperson for Think Money have warned against the dangers of putting down so little.

Firstly, Louise Holmes believes the number of 90% LTV product available is a direct result of mortgage lenders recognising the fact that people, in the majority, are struggling to raise more than 10% deposit and the expanding portfolio is a tentative hand to help out those in that bracket. However, acceptance is ‘at a premium’, as the credentials to be approved must be so squeaky clean and watertight, many who qualified back in 2008 would not do so now.

Think Money are issuing a warning of a different type. If you are buying a house as a stepping stone onto bigger things, a 10% deposit may not be enough to obtain a remortgage when the time comes. Most people step up the ladder, not down. With inadequate equity in your property, which is often the case in the short term after taking out a high LTV mortgage, raising capital for the deposit for the upgrade is nigh on impossible, thus negating your claim.

If you plan to stay, it may be a good move, but if you’re looking to progress, you may be wise to hold back until you have raised a bigger deposit, thus reducing the loan to value required for your property, which will also help reduce the interest rate on your self employed mortgage monthly repayment.

Author: John Yerou

John Yerou is the owner and founder of Self Employed Mortgages; a trading style & trade mark of the award winning Mortgage Quest Ltd. One of the most recognised names in providing mortgages for Self-Employed professionals across the UK.

In 2004 John began his career in Financial Services as an independent mortgage adviser and broker. John has been instrumental in negotiating bespoke underwriting for contractors with high street lenders.

His presence in the industry as a go-to expert is growing by the day and he is regularly cited and writes in publications both locally and nationally.

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