Mortgage blog: Could an equity loan help you get a high-LTV mortgage?
Over recent years, the number of low-deposit mortgages has fallen significantly. Lenders have been reluctant to offer high loan-to-value (LTV) loans, especially to first-time buyers, preferring to concentrate their efforts on so-called ‘safer' customers.
So, getting a high LTV mortgage has been tough. Now, though, a specialist lender has launched an equity loan scheme which aims to help buyers with a small deposit. And, you don't pay any interest on this borrowing. We look at whether an ‘equity loan' could be the answer if you're looking to buy with a 10% deposit.
Equity loan deal '30% cheaper than a 90% purchase mortgage'
Money Marketing reports that Castle Trust has launched a three-year fixed rate product for first-time buyers in partnership with Kent Reliance. Castle Trust's Partnership Mortgage sits as a second charge equity loan between your own equity and the main mortgage. There are no monthly payments and Castle Trust only receives any payment on its share of the property when the property is sold, the loan matures or when you decide to repay. Instead, the lender accepts a share of the increase in the value of the property from the date your loan is taken out.
In some cases Castle Trust could have to accept a loss if the value of the property has gone down.
The equity loan scheme can be combined with a 70% mortgage deal from Kent Reliance. Paul Howard, managing director of mortgages at Castle Trust, says that the Partnership Mortgage scheme, combined with the Kent Reliance's three-year fixed rate at 2.99%, means monthly payments are a lot less than any other 90% LTV deal in the market. He claims that the combined Castle Trust/Kent Reliance deal is around 30% cheaper than the monthly cost of a 90% purchase mortgage.
Howard adds: "While the Help to Buy scheme is there for some purchasers of new-build property we are the only provider of equity loans on properties at least two-years-old and our criteria are much more flexible. This offer is unique."
There is an early redemption charge within the fixed-rate period of 3% of the amount repaid by way of capital repayment or in full redemption.
Keith Osborne, editor of WhatHouse.co.uk, says: "While the monthly repayments via this scheme are likely to be significantly lower than other 90% mortgages, it could still cost you more in the long term. That is because Castle Trust takes an equity share in your home. So, if the value of your property were to rise substantially during your period of ownership, they would take a share of that equity when you sell. This could end up costing you a lot more than increased mortgage payments from day one."
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