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 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.
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.
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.