Over the last few months the 95% loan-to-value (LTV) mortgage market has come back to the foreground, allowing more people to get onto the property ladder with a minimal deposit. However, it's banks that are rapidly taking over the sector, with there being a significant rise in the number of products being brought to market over the last six months.
Historically, building societies have held a greater share of the 95% LTV market, largely because the banks have been reluctant to offer such high-risk products. Since the second phase of Help to Buy (H2B), however, the tide has started to turn, with the banks rapidly eroding the building societies' former market share.
Moneyfacts figures show that six months ago there were a total of 35 products available in the fixed 95% LTV sector, just eight of which came from banks. Fast forward to today, however, and the total has risen to 106, with banks now offering 58 of those fixed rate products.
"The 95% LTV mortgage market has been reluctant to rejuvenate its place in the market for far too long, but at last it has come to the fore," said Sylvia Waycot, editor of Moneyfacts.co.uk. "It is interesting to see how the banks have so quickly dominated the fixed rate 95% LTV market from the building society sector," with the figures clearly showing that banks are becoming more willing to lend at this level.
Arguably, this is because under H2B, the Government guarantees 20% of the loan amount. That means participating banks are able to offer products at less risk – and can therefore offer lower rates than building societies.
So, with more well-known names getting into the arena it means building societies have needed to adjust their strategy, which is why they're starting to get into the variable rate sector instead.
Banks still don't seem to like the risk associated with variable rates but building societies are using it as an opportunity, with there now being a larger number of variable rate 95% LTV mortgages than has been seen for some time. In fact, 21 of the 25 variable products on offer come from building societies, indicating a desire to compete on a different playing field.
This increased level of competition can only be a good thing for those looking to get on the housing ladder, as it means they've got a lot more options when choosing suitable mortgages. Some might like the security of going with a bigger name whilst others might prefer the personal approach of smaller lenders – either way, they're certainly not short of options.
However, a word of caution for those considering a variable rate – "The danger of a variable mortgage for a FTB is that you are at risk of fluctuating monthly repayments and the need for budgeting for increases is more important, especially with the current uncertainty of when rates will rise and by how much," said Ms Waycot, so affordability continues to be a top priority no matter which route you choose to go down.
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