First-time buyers with a 10 per cent deposit have more mortgage options after Virgin Money unveiled four 90 per cent deals fixed for seven or 10 years.
However, the deals have some restrictive elements. Firstly, buyers must fix for seven or 10 years – much longer than most fixed rates which last two or five years – and none of the deals are available for those purchasing flats, maisonettes or new builds.
The best of the four deals is the 90 per cent loan-to-value seven-year fix, with a 2.99 per cent interest rate and £995 fee.
In recent months, mortgage options for those with a 10 per cent deposit have dried up thanks to coronavirus and lenders’ uncertainty about how recession, job losses and the potential for rising mortgage possessions could affect house prices.
The arrival of a number of new – and pretty competitively priced – deals will therefore come as welcome news to would-be buyers hoping to take advantage of the temporary stamp duty holiday.
Virgin has revealed its 90 per cent LTV products will now be available to first-time buyers
Fixing for longer may be appealing for some as it will protect them from any potential rate rises and provide absolute certainty over repayments until 2027.
However, seven years is a long time to be locked in, with many mortgages capped at five years maximum to give homeowners more flexibility if they need to move house.
What deals Virgin are offering?
Aside from the 90 per cent LTV seven-year fixed rate with £995 fee at a rate of 2.99 per cent, Virgin is offering another seven-year fix – a fee-saver priced at 3.09 per cent.
The fee saver deals mean first-time buyers will not have to pay any fee up front, but their interest rate will be slightly more, increasing their monthly repayments. Overall, however, fee-free deals tend to be cheaper as you’re not paying interest on the mortgage plus the fee.
For its 10-year mortgages up to 90 per cent LTV, the £995 fee version has a 3.09 per cent rate and its fee-free version 3.19 per cent.
The deals are only available to customers purchasing houses, narrowing down the pool of those who can use it further.
Another unusual aspect of the mortgages are the fact they come with a maximum term of 25 years.
While this term was the norm not so long ago, many now opt for 30, 35 or even 40-year terms.
All of these elements suggest that while Virgin is dipping its toe back in the water for 90 per cent LTV, the lender is being cautious over potential short-term property price falls. The maximum purchase price is £400,000.
On the Virgin website, it says: ‘This mortgage allows you to port the mortgage balance, or a reduced balance, to a new property subject to any applicable early repayment charge.’
On the seven-year version for example, the ERC is 7 per cent until 1 Jan 2023, 5 per cent until 1 Jan 2025, 3 per cent until 1 Jan 2026, 2 per cent until 1 Jan 2027 and 1 per cent until 1 Jan 2028 of the outstanding loan balance.
David Hollingworth of broker L&C Mortgages said: ‘As lenders continue to deal with very heavy demand alongside ongoing capacity and resource challenges the market for those with smaller deposits has contracted substantially.
‘Any lender looking to relaunch into the 90 per cent LTV market is therefore very welcome and Virgin’s re-entry is a good sign.
‘Those lenders that are stepping back into this market are generally making tentative steps.
‘With so few options and ongoing high demand there remains a danger that lenders are quickly overwhelmed with applications.
‘As a result many have limited the availability of products, for example narrowing eligibility to first-time buyers only.’
The Virgin mortgage is one of the very few deals offering a 90 per cent loan to value right now
What do the experts say?
Cassie Stephenson of Habito, the online mortgage broker, said: ‘Virgin coming to the market with a new first-time buyer deal at 90 per cent, the first that we’ve seen for months, will seem like a welcome move for many young people who’ve struggled to get the mortgage lending they require since lockdown.
‘With the UK economy where it is, coming out of lockdown and with Brexit scheduled for December, it seems more likely that lower interest rates will stick around for a while yet.
‘Unfortunately, these aren’t normal circumstances for many first-time buyers. We hope this move from Virgin will encourage more lenders to rejoin the 90 per cent lending market for first-time buyers.’
House hunters will benefit from savings of the stamp duty holiday if buying before March 2021
Chris Sykes at Private Finance added: ‘Virgin’s new product for first-time buyers is an interesting one, and indicative of the long-term uncertainty forecast in the housing market.
’90 per cent is at the riskier end of the lending spectrum at any time, but especially when house prices are predicted to fall imminently.
‘This is a clever move from Virgin as by offering this product, they are tapping into the huge amount of demand for a high-LTV product currently in the market, but also with a long-term fixed rate they will be able to insure against any market uncertainty in the near future.
‘What is particularly interesting is how they have limited the lending to houses and this could be reflective of the potential for flats being hit harder by price drops and buyers reconsider what they want from a property and are less geographically tied to city centres.’
How does it compare?
Currently, there are no other 90 per cent seven or 10 year fixed rate mortgages available on the market.
The next best available 90 per cent LTV deal is with First Direct which is fixed for five years at a rate of 2.59 per cent with a fee of £490, giving homeowners smaller monthly repayments but shorter term security.
HSBC also has a five-year plan fixed at 2.74 per cent with a fee of £999.
However, if buyers are able to save a further 5 per cent, bringing their total deposit to 15 per cent, they will find that mortgage rates improve greatly.
For example, First Direct offers a five-year fixed mortgage at a rate of 2.34 per cent and fees of just £490 – a much better rate than 2.99 per cent. HSBC is also offering the same deal but with fees of £999 instead.
For those who would prefer more flexibility, TSB offers a ‘Fix and Flex’ deal, letting borrowers fix their mortgage rate for five years but only charging you for leaving early in the first three years of the deal.
This could give some buyers the opportunity to achieve the certainty of a fixed rate without having to worry about staying locked in for the whole five years.
Hollingworth added: ‘Borrowers will need to weigh up the suitability of the early repayment charges which do lock them in for the duration of the fix and see how if that sits with their expectation.
‘For example first-time buyers pushing for a property that they can see themselves being in for the long term, perhaps as they start a family may see these as a positive option that gives them useful budgeting certainty.
‘Nonetheless, Virgin’s return to the 90 per cent market is positive and will hopefully help spur on other lenders to rethink their position and improve the range of options for first time buyers that have found the squeeze on mortgage availability only make the first step on the ladder more challenging than it already was.’
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