Mortgages can be difficult to understand, but for home buyers knowing the difference between the various options available is crucial. Currently, the government is deciding whether to support 99% LTV mortgages to better be able to help first-time buyers to be able to buy property by only needing to put down a 1% deposit. In this blog, we cover everything you need to know about 99% mortgages and how they work.

What is a 99% LTV mortgage?

A 99% LTV mortgage works by a lender offering you a loan which is worth 99% of the sale price of your property meaning that as a buyer you would only need to put down 1% of the property’s price.

For example, if you agreed on a sale price on a property worth £270,000, you would only need to put a deposit of £2,700 down to secure the sale.

Are banks offering 99% LTV mortgages yet?

At the moment there are no 99% LTV mortgages on the market. However, there are mortgages for 90%, 95% and 100% LTV for borrowers who cannot afford a larger deposit.

The advantages:

The 99% mortgage could provide great relief for renters suffering from ever-escalating rent, finally giving them a chance for home ownership.

With the government supporting the 99% mortgage, this may also mean that lenders might go easy on them and enhance the availability of loans.

The disadvantages:

Bigger mortgages make the risk of negative equity scarier. If home prices decrease rapidly, borrowers might owe more than their homes are worth, which is a terrible situation.

Alternatives:

A different option could be the Right to Buy program which is available for private renters and could help struggling landlords and tenants. This option allows tenants with a secure tenancy to be able to buy their property after five years, however, there are restrictions when it comes to purchasing the property at a discounted rate. At the start, the tenant needs to agree not to sell the property in the first five years or else they risk losing the discount.

The idea of a 99% mortgage seems like a great option for many aspiring homeowners. However, although it sounds like a great idea, it also has a lot of risks that come with it. Whether it’s the ultimate solution to the housing crisis is still uncertain. But, it provides a small chance at homeownership in a situation filled with uncertainty.

If you need help in this area, please contact our conveyancing team.

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