Hull is the most affordable city for first-time buyers with small deposits to buy a home, new findings have shown.
According to The Nottingham Building Society, with an average property value of £121,335, a buyer with a 5 per cent deposit in Hull would need £6,066 to climb the housing ladder.
Buyers looking to leave a home and live in a flat or maisonette can climb the even lower ladder in Preston, where a 95 percent loan-to-value mortgage requires a deposit of around £3,820.
In the top 20 largest cities in the country, the average amount required for a 5 per cent mortgage deposit is £10,606, the figures show.
For flats and mezznets in cities, the average amount required for a 5 per cent mortgage deposit is £7,605.
High loan-to-value mortgages were axed at the height of the pandemic, as lenders became increasingly risk averse.
In April this year, the government launched a new state-backed 95 percent mortgage scheme, giving buyers with smaller deposits a better chance of being able to buy their own home.
Stoke and Sunderland give potential buyers hope when looking for a home with a small deposit, with buyers requiring £6,316 and £6,668 respectively for a 5 per cent deposit.
On the other end of the spectrum, London is the city with the highest amount required for a 5 percent deposit.
In capital, a potential buyer would need about £25,514 for a deposit if they were to require a 95 percent loan-to-value mortgage. Even for flats and houses, a buyer would need around £21,535 for a 5 per cent deposit.
Potential buyers looking for homes in popular cities such as Birmingham, Bristol, Leicester, Edinburgh, Leeds, Cardiff, Manchester, Coventry and Reading will need a five-figure sum to save enough for a 5 percent mortgage deposit, Nottingham said. said.
How does the government backed 95% mortgage plan work?
In April, the government launched a new scheme under which it ‘guarantees’ 95 percent mortgages to potential buyers with a 5 percent deposit.
The new plan was first announced in the Chancellor’s Budget in March 2021 and was designed to ensure that lenders start offering 95 percent mortgages again.
At the peak of the pandemic, groups of banks and building societies became increasingly risk-sensitive and scrapped their high loan-to-value mortgage offerings.
Simply put, under this scheme the government will bear some cost if the lender loses money. This can happen, for example, if the borrower fails to maintain his mortgage payment and the property is returned.
Any buyer with a small deposit can theoretically receive one of the 95 percent government-backed mortgages, and they are not limited to first-time buyers.
They can be used by anyone who has purchased the main home, including previous homeowners and movers. Certain eligibility criteria apply.
For example, the value of the property cannot exceed £600,000.
Lenders are not required to participate in the scheme, but many big-name ones, including Barclays, Lloyds, HSBC, NatWest and Santander, have done so.
Taking one example, HSBC is offering a 95 percent loan-to-value two-year fixed rate deal with a 3.99 percent interest rate and a £999 fee.
According to the information website Moneyfacts, there are now more than 200 95 percent loan-to-value mortgages available, including within and outside a government-backed plan.
The government-backed 95 percent loan-to-value mortgage scheme opened on Monday, April 19 and will run through December 2022.
While a 95 percent mortgage will likely be attractive to some buyers with small deposits, it’s important to note that the interest rate payable will typically be higher than in a lower loan-to-value deal.
If possible, it is always wiser to save on a higher deposit, where you will be in a better position to be able to get a mortgage with a lower interest rate.
Denise Wells, Head of Mortgage Operations at The Nottingham, said: ‘There is a wide range of LTV mortgages currently available in the market, up to 95% of the time.
‘The data shows this makes deposits more obtainable, with the average 5 per cent deposit for the top 20 cities being £10,606 or £7,605 for a flat or maisonette.
‘It’s still a substantial amount to save, and the cost of buying and moving other assets should also be covered, but it can be achieved with the right savings habits.
“However, depositing is only the beginning and first time buyers need to consider how they will afford the mortgage throughout its tenure. The case generally remains that the larger the deposit, the more competitive the rates.’
Five Tips to Help You Secure a Mortgage
Getting a mortgage can be stressful, complicated, and difficult. But, here, Michael Taggart, chief executive of Taggart Homes, offers five handy tips to buyers to help them secure a home loan:
1. Check Your Income and Expenses Carefully
One of the most important elements when applying for a mortgage is being able to demonstrate your financial stability.
Lenders want to see reliable and predictable expenses, which will help you reach your ability to repay your loans comfortably and on time.
In most cases, lenders look at three months’ bank statements and analyze your regular expenses and outgoings, it is important that all your bills are paid on time.
2. Check Your Credit File Before Going to the Lender
Your credit file will play a big role in establishing your eligibility and affordability when applying for a mortgage.
Check your score and history with the major credit reference agencies in the UK to make sure you have all the information available – your mortgage advisor will be able to advise which agency is most relevant to you.
3. Increase Your Deposit Amount
Loan-to-value is a measure banks use to determine deposit percentages.