Aaron Archer: 95% LTVs can be good and bad for FTBs

Borrowing 95% of a properties value can be a good and a bad thing for first-time buyers, according to Aaron Archer, chief executive of Finndon.

Recently, the government revealed plans to make mortgages more widely available to FTBs.

Archer said: “If we are to look at the positives, a 95% mortgage will allow many people across the country – including those who thought they would never own their own home – to buy a property, whether it be a flat or a house.”

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As a result of this, those purchasing a property would in turn save thousands in rental fees and benefit from capital gains, caused by the possible increase in property prices.

Archer expanded: “On top of this, coupled with the stamp duty holiday, if you have saved a larger deposit you will have more options with regards to the kind of home you can look at, as your options have increased as to what you can afford.”

However, looking to the negatives for FTBs purchasing with low deposits, Archer said: “The flip side to this, is that with a lower deposit, comes a higher risk to you and your lender. This means that you could be charged a higher interest-rate on your monthly payments and you could experience trouble remortgaging your home further down the line.”

Moreover, one of the larger risks when purchasing a property with a small deposit is that if house prices were to drop, you could end up owing more on your mortgage than what the property is actually worth

Archer added: “If you are also unable to meet the mortgage repayments, this becomes a horrible position to be in and could mean that you need to sell your home for less than what you bought it for, or even worse lose it altogether.”

As a potential solution, Archer points to making over-payments on a mortgage in order to increase the buyers equity stake in the property, but also to reduce the amount of interest owed long-term.

Archer concluded: “The housing market and UK economy are very fragile right now, so choosing when to invest and make the jump to owning your own home is all about timing.”