Being a Huddersfield first-time buyer in the last 12 months has not been an easy thing. Just before lockdown there were 400 ‘5% deposit mortgage’ deals and first-time buyers were able shop around to get the best deal. When the first lockdown hit, 5% deposit mortgages disappeared, meaning that as many Huddersfield would-be first-time buyers were about to buy their first Huddersfield home in 2020, the rug was pulled from under their feet.
Today, you can count on two hands the number of mortgage
deals which allow a 5% deposit. Even worse, the number of hoops one has to jump
through to get a 5% deposit mortgage is very high (plus you have to pay handsomely
for the privilege, with mortgage rates of at least 4.15%).
In putting down a 5% deposit, you borrow the remaining 95%
as a mortgage. These 95% mortgages (or Loan to Value) were very popular with Huddersfield
first-time buyers before the Credit Crunch. Nearly 1 in 6 mortgages were 90% to
95%+ Loan to Value mortgages in 2007 (15.5%), yet as the Global Financial Crisis
hit in 2008/9 that dropped to only 1 in 63 mortgages being in 90% to 95%+ range
in 2010 – meaning many Huddersfield first-time buyers were unable to buy their
first Huddersfield home between 2010 and 2015.
Yet in the recent Budget, Rishi Sunak has vowed to back the building
societies and banks so that they can offer more of these higher 95% Loan to Value
mortgage deals.
Many people have said this will mean there will a Huddersfield
house price boom – especially as
Stamp Duty is extended until September
This scheme is nothing new as a practically identical scheme
was launched by George Osborne in the 2013 Budget with his Help to Buy Scheme.
Nearly 1 in 5 houses sold in the year after that budget used this scheme, yet Osborne’s
was only for first-time buyers and it was only for brand new homes (not
second-hand homes). Whilst there’s no doubt this caused an increase in house
purchases, many commentators said it was a backdoor method to keep the country’s
new homes builders afloat.
The big difference with this new 2021 scheme is that
it’s available for Huddersfield second-hand homes as well and is open to
all Huddersfield owner occupiers moving home
Yet, what will the banks mortgage interest rate charge be?
Although no building societies or banks have yet publicised
what mortgage rates they will charge, all the High Street lenders including
NatWest, Santander, HSBC, Virgin Money, Barclays and Lloyds have stated they
intend to offer these 95% LTV mortgages.
Under the Government’s mortgage guarantee to the banks,
Westminster will guarantee 20% of any mortgage offered at 95% Loan to Value. In
principle, that means that building societies/banks should be able to offer the
low mortgage rates as those available to people wanting to borrow 75% loan to
value.
At the moment the average five-year fixed rate mortgage
is 3.6% with
a 10% deposit, but
if you have a 25% deposit, you can fix it for
five years at 1.63%
However, don’t forget though that the banks will be charged a
‘still to be decided’ amount to use the Government guarantee. On the last Help
to Buy Scheme, it was rumoured they were charged 0.9% of the mortgage borrowed,
so this cost would have to be passed on to the first-time buyer. I would
suspect the eventual rates Huddersfield first-time buyers will have to pay will
be somewhere in the region of 3%.
This new 95% mortgage/5% deposit scheme is only going to work
if the banks and building societies have sensible mortgage rates as it needs to
help those Huddersfield first-time buyers it was intended to benefit, who are finding
it hard work to get on the first rung of the Huddersfield housing ladder.
It all comes down to how anxious the banks and building societies
feel about the true long-term effect of the pandemic once the furlough scheme
ends in the autumn. Only time will tell.
Yet, to give you an idea of the difference the mortgage
rates scheme will make on a typical Huddersfield terraced/town house…
The average price paid for a Huddersfield terraced/town
house in the last 12 months was £127,100
Assuming a 35-year repayment mortgage and borrowing that
amount on each scenario:
·
At the current best 95% LTV mortgage rate (i.e.
5% deposit) of 4.15% mentioned at the start of the article, that would cost £574
per month in mortgage payments
·
At the current average 90% LTV mortgage rate (i.e.
10% deposit) of 3.6% mentioned in the middle of the article, that would cost £533
per month in mortgage payments
·
At the best 75% LTV mortgage rate (i.e. 25%
deposit) of 1.63% mentioned at the start of the article, that would cost £397
per month in mortgage payments
As you can see, quite a difference.
I have to applaud Rishi Sunak for this initiative, yet
will it be ‘fields of clover forever’ for the Huddersfield property market with
the new scheme? No, it won’t.
It will be a good boost to the Huddersfield (and UK as a
whole) property market. Whilst the mortgage guarantee offers a small portion of
security for the lenders, it does focus on the riskiest part of the housing
market. Many lenders still have cold shivers of the Northern Rock 125% mortgage
debacle from a decade ago and those memories still ring true today.
The fact is these types of mortgages will be a higher risk,
even if the Government are underwriting them with their smaller deposits, which
will come through in bank’s and building societies higher pricing for these
mortgages. Also, the lenders are already at near full capacity trying to get
hundreds of thousands existing property sales and purchase deals through because
of the Stamp Duty rush over the last 9 months. I await the rates in early April
and will make comment again.
If you are a Huddersfield homeowner, potential Huddersfield first-time
buyer or anyone involved in the Huddersfield property market and you would like
to chat about anything I’ve covered in this article or any of my other articles
on the Huddersfield property market, please don’t hesitate to drop me a line.
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