I was very surprised when my mortgage broker called me to tell me the news that one mortgage lender, Kensington was now offering 85% Loan To Value Mortgages.
When The Mortgage Works (TMW) were the first to break ranks and offer their 80% LTV product last year I had expected to see a few companies follow suit but none did! So it was a real shock when I discovered that Kensington had jumped straight in with an 85% LTV Mortgage this week.
The figures on this seem to change daily but the upshot is they will offer 85% LTV mortgage, at a 2 year fixed rate of 5.99% with a rent calculation of just 120%.
Before you get too excited there are a few drawbacks.
• The minimum loan is £90k
• The borrower needs to be able to prove an income of at least £30k
But the main drawback seems to be that the reversionary rate (the rate after the 2 year fixed period) is 5% above Libor. For me this is a big potential worry. Imagine the situation: You have purchased a property with an 85% LTV mortgage. Interest rates rise over the next few years such that you are on an effective mortgage rate of 7% or 8% after the two year fixed period. If value have now increased much in this time period it will be very hard to re-mortgage to a cheaper rate unless there are more lenders in the market offering 85% LTV Mortgages. This means that you could well be stuck with this very high rate.
I am not a financial advisor and so cannot offer any financial advice, but personally I would not bother with a fixed rate mortgage right now if it was only for two years. I don’t think we are going to see much of a change in the Bank of England base rate because we need the economy to recover before rates can go up. However in the medium to long term there is no doubt that rates would go up so I would consider fixing the interest rate for say 5 years to minimise uncertainty.
We shall have to wait and see if any more lenders come to market with 85% LTV mortgage products! I would be interested to hear your thoughts on this. Post your response here.
Founder property Investors network