95 per cent loans? Proceed with caution
FIRST- TIME buyers who scramble on to the housing ladder only by taking on a huge mortage face a future in negative equity, according to research published today.
Building societies are increasingly offering 95 per cent mortgages to young buyers who are struggling to raise the huge deposits required to secure a starter home. Latest into the fray is the Yorkshire Building Society, which is offering buyers with a five per cent deposit a 3.25 per cent interest rate fixed for two years.
The average price of a flat in the capital is moving inexorably towards the £400,000 mark. According to Halifax, it’s currently £398,038, so buying an average flat would mean raising a deposit of some £20,000 and paying £1,843 a month to service the debt, assuming a 25-year repayment mortgage is taken out. That figure will rise with bank rate increases. And after two years the Yorkshire Building Society rate will grow to 4.74 per cent, pushing monthly costs for an average flat up to £2,154.
Meanwhile, new research from Knight Frank is gloomy on capital growth, forecasting a below-inflation one per cent rise in house prices this year, 2.5 per cent next year, and three per cent in both 2019 and 2020. Experts warn this “perfect storm” of interest rate rises, high levels of lending and mouldering prices could trap owners in homes worth less than they paid for them.
£400,000: an ultra-modern one-bedroom flat is for sale in Three Colt Street, a handsome listed period conversion in Limehouse E14 Through Fine & Country (020 7987 8777)
£400,000: just over the London average flat price, a twobedroom flat in Telford Ave, SW2. Brooks (020 8769 8000)