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The rise, fall and recent resurgence of 95% LTV mortgages

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Once upon a time in a land before financial collapses and banking crises there lived a happy little product called the 95% loan-to-value mortgage. In fact, not just one, but there were many to be found on the High Streets, up and down the country.

Then along came a tempest that blew almost all across the world, scattering many of these mortgages, along with their cousins: self-cert mortgages, all out to sea and they were not to be seen again for a very long time. Messrs Credit Crunch and Austerity Measures did a wonderful job of stopping them coming back under the watchful eye of their parent, the Financial Services Authority.

But, gradually a few crept through the guard and, as the housing sector in which they lived and the construction industry which fed off these mortgages were both suddenly starving. the Overlords not only started to welcome some of them back, but introduced 95% LTV mortgages into the land themselves, calling their strain NewBuy mortgages, although the landscape of the land had changed a lot since the original family had long since been set adrift on memory bliss. And in truth, these new introductions – even to this day – have not yet been fully welcomed with open arms by the indigenous people of the land.

One teller of legend, Moneyfacts, relates that in 2010 the 5% deposit mortgage (as it was otherwise known) was almost an endangered species, with only nineteen to be found across the entire nation. However, more slipped through the net and, a year later, they had increased their number to 29; with the introduction of the Overlords’ NewBuy branch of the family, 2012 has seen their population double to 58. Although they are all very slightly different and live in twenty-two different houses (called banks or building societies), they have become a lot more expensive to keep, certainly than they were before and almost twice as costly every month as other members of the mortgage family.

Some of the banks or building societies are so very particular in who can access the 95% LTV mortgage that they make sure, that if you want one, you have to have someone older and with a lot more money (called a guarantor) who will sign to say they will look after it if you are not able. They may have to sign up for one fifth of the cost of the mortgage or, in extreme cases, if you have been a naughty boy or girl yourself and have upset Mr FSA or Mrs Experian in the past, your guarantor may have to say they will look after your 95% mortgage for the whole of its life if you become poor and cannot look after it yourself.

So if you go looking for one of those 95% LTV mortgages, remember this: they may look all cute and lovely from the outside, but make sure you check them out thoroughly. Some of their baggage (sometimes called ‘the small print’) can be not very nice. And they can take up a lot of your monthly money to look after, compared to some of their cousins, at least.

And I wish I could say ‘The End‘, but it is so not. Join me in the next article when we take a grown up look at why 5% deposit mortgages are definitely there, but are nothing like the product they used to be when they were the norm (before the nasty tempest came and swept all of the good ones away).

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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