An interesting new trend for 95% LTV ( loan to value) mortgages is emerging, with enough strings attached to furnish a harp. This trend is something I’m going to label ‘localised lending’. From what I can see it centers around small building societies that you will probably have never heard of unless you live in the local area where they operate. These companies are offering selective lending with 95% mortgages which are based around a few postcodes within their chosen areas.
I’ve spotted around 60 of them in the last few months, all working within specific geographical areas only. Looking at the deals on offer it’s clear that there are some pretty hefty restrictions. These come in the form of ( but not restricted to);
- Long fixed terms – minimum about 4 years with added restrictions such as the inability to overpay the mortgage.
- Very high exit charges – early redemption charges (ERC’s ) – at around 4-5% of the total mortgage.
- Almost double the market rate interest rates – over and above BOE base rate, locked in for fixed term.
- HRC’s – higher lending charge fees, a kind of insurance for the bank that you pay for so they don’t lose money.
- They may restrict to repayment type mortgages only which are always more expensive.
In one way this could be good in that the finance houses involved are concentrating only local lending, so one would assume that they know the local market and are not in the habit of ‘speculative lending’ which caused so much grief previously with the big banks. These building societies are sticking to what they know.
Examples Of Localised Lending Deals
Saffron BS launched la 95% LTV mortgage last year for mainly East Anglia postcodes, there was one for Welsh postcodes from Monmouthshire BS, and another from Furness BS based mostly in North West postcodes. I’m sure there must be more that I have not come across out there. To me this shows and interesting change in thinking centered around serving a community rather than just mass market one size fits all type mortgages we have seen in the past. ( Maybe the Channel 4 program Bank Of Dave last year had an impact with some building society managers!)
Prior to this the only 95% mortgage loans being offered were attached to dubious schemes such as those requiring a guarantor, or government New Buy, First Buy, Save to Buy etc, which have been a bit a a damp squid. I can see this new trend of localised selling makes a lot of sense and something that the big banks would find harder to implement unless they are a bit switched on with good managers in place, hence the competition would be less for the market share for the smaller building societies.
The UK property market will continue to stagnate unless better thinking like this comes to the fore, and, whilst it still has a way to go in terms of the costs to the buyer and fairness, I do think it is a step in the right direction. If you do think about taking on one of these mortgages be sure to read the small print very carefully. Being tied to a 5 year mortgage can present it’s own problems. A lot of life changes can happen inside 5 years as many people found to their cost when the market crashed. Moral of this tale is to be sure to check with an independent broker if you are seeking a mortgage as there may be some of these schemes running in your area too
