Lenders generally seek to minimize their risk of mortgages for contractors. For example, one of their tools is the number of deposits they get in contractor mortgages. But lenders consider different criteria, conditions and ratios for calculating the deposit amount (Loan-To-Value ratio (LTV)). The calculation of LTV rates depends largely on the credit score of the borrowers. Contractors and first time buyers are always threatened with high LTV mortgages.
In other words, contractors must reduce lenders’ risks as much as possible and increase their confidence in mortgages for contractors. For example, if contractors have a bad credit history, lenders will naturally consider low LTV percentages to mortgages for contractors. On the other hand, contractors come across different lenders with different LTV ratios, thus making it difficult for them to find the maximum amount of LTV mortgages. Identifying these factors and finding the lenders that provide the most LTV to contractors is a difficult, time and energy-consuming task.
However, lenders in different geographical locations make different decisions in this regard. Depending on the supply and demand and the affordability of the contractors, the lenders consider different conditions for them.
Advantages And Disadvantages Of 95% LTV Mortgages
- Less Deposit – The most important advantage of these mortgages is that contractors only need to pay 5% of the mortgage amount as a deposit to the lenders.
- Avoid the effects of rising house prices – If contractors want to save much money to get a house with a lower interest rate. They may face rising house prices, which is a threat. For example, buying a house in London is one of the dreams of every contractor. Who wants to own a house with a limited budget before raising prices.
- Living Improvement – In this case, contractors can buy a house for a higher price, a larger size, or a house with a better location.
- The best option for first time buyers – Contractor mortgages are the best option for first time buyers because these contractors have less income and, therefore, can pay fewer savings. This is the best option for first time buyers who want to buy their house as soon as possible.
- Difficult Eligibility for Mortgages – The important thing about 95% LTV mortgages is that lenders’ criteria for providing these mortgages are difficult, and contractors can hardly meet lenders’ criteria. Contractors must prove that they can repay the instalments on time (even if the interest rate on these mortgages increases over time).
Although 95% LTV mortgages will go a long way in helping contractors buy a bigger house, buy a better location, or own a house sooner, these mortgages also have disadvantages.
- Higher rates – By increasing the loan-to-value ratio, lenders will likely charge higher rates for contractor mortgages.
- Fewer options – Despite this ratio, contractors will have fewer options regarding lenders and products available in the market.
- Decreased equity – Mortgage rates are likely to increase when the deposit is not high. An increase in the mortgage rate will greatly increase the amount of debt the contractors owe to the bank, and therefore will negatively affect the contractors’ share of the house.
- Decrease in the contractors’ affordability – If the mortgage rate increases too much, it may affect the contractors’ affordability to pay for their daily expenses such as car repairs, travel, childcare, bills, and other expenses and therefore negatively affect the peace of mind of the family.
- Increase lending costs –Lenders usually charge different mortgage fees whose loan-to-value ratio will increase significantly (more than 80%). For example, the costs of closing, terminating a contract, underwriting, applying for a mortgage, etc., are the costs that lenders impose on borrowers in such cases. Contractors should pay close attention to these costs when getting these mortgages. Its clearly understand these costs because they may influence their decision to get these mortgages.
- Debt increase – Mortgage is 95% of the large debt contractors must accept to repay the principal and interest on the mortgage. So contractors need a common salary or income to repay their mortgage monthly. Otherwise, the bank or lenders may recapture the contractors’ houses.
- Mortgage amount – although the rules for multiple incomes are not yet clear, lenders may be subject to strict rules that prohibit them from lending more than 4.5 times the borrowers’ income.
What Effect Did The Coronavirus Epidemic Have On 95% Of LTV Mortgages?
Covid-19 hit hard on 95% of LTV mortgages as lenders took back many of the deals they had for those with fewer deposits. But there are still lenders who offer these mortgages. But finding these lenders is a difficult task for contractors.
Some lenders have suggested solutions. For example, a family member can act as a mortgage guarantor. This means that if for any reason the contractors are unable to repay their mortgage instalments on time. The contractors’ family members will agree to cover the repayments. Having a mortgage guarantor can help contractors access better rates. But these mortgages also have special conditions. For example, the guarantors must be the house owner or have a significant value and a large share. They must also have enough income to cover the contractors’ mortgage payments and their payments.
Can Contractors Get 95% LTV Remortgages?
Contractors can get 95% LTV remortgages, but it may take some time. LTVs of Most contractors get low when they create some stock in their assets; in this case, they are looking for a mortgage. For example, if the contractors have a 95% mortgage and if the value of the property increases significantly after the end of the current transaction. It may be worthwhile to move to a new mortgage with a lower LTV.
How Do Contractors Apply For A 95% Mortgage?
Contractors can apply for 95% of a mortgage either through a mortgage broker or by contacting the lenders directly. Contractors have to find the best deal in terms of rates and terms through extensive reviews like any new mortgage applicant. There are currently several lenders who offer 95% of government-sponsored mortgages. These mortgages are available to those buying their first house and current homeowners looking to relocate.
AWS Mortgage specialist advisors recognize lenders who offer 95% LTV mortgages. AWS Mortgage advisors with years of experience in 95% LTV mortgages help contractors at various stages of applying for and getting a mortgage. Our advisors are familiar with the complexities and challenges of these mortgages and can help contractors accurately meet the lenders’ criteria.