Digital-only bank Atom has launched a range of only-5%-deposit mortgages for first-time buyers. The interest rates on Atom’s new 95% LTV mortgages are okay, but not great: 3.59% for a two-year fixed deal, 3.89% for three years, or 3.99% for five.
All three of the mortgages are fee-free, include a free valuation, and you get £500 cashback upon completion of the purchase.
As with all Atom products, you manage the mortgage application through the bank’s smartphone app. But, rather oddly, you can only get an Atom mortgage by going through a broker – which means you’ll almost certainly have to pick up a phone and talk to a broker first. And then, once you have a conveyancer, you’ll probably have to talk to them on the phone, too.
Atom has offered a number of mortgage products since last year, but this is the first time the bank has specifically targeted first-time buyers with a deposit of only 5%. Atom has also done away with a previous £300,000 maximum loan amount for first-time buyers, and the max mortgage term is now 40 years.
“These deals will be attractive to first-time buyers who want to get onto the property ladder,” said Atom’s Maria Harris.
Should you get a 95% LTV mortgage?
It’s certainly true that a 5% deposit is easier to save up than 10 or 15%, and a 40-year mortgage has smaller monthly repayments than a 25- or 30-year mortgage. But does that mean a 95% LTV mortgage is a good deal?
In short, no – but it depends on your personal situation. 95% LTV mortgages have the worst interest rates – which, over time, mean you’ll be repaying thousands more in interest. If you can save up a deposit of 10%, or 15%, you can obtain a mortgage with a much lower interest rate.
Here’s an example. If you have a £400,000 95% LTV (read: what is LTV?) mortgage from Atom over 30 years, with a two-year fixed interest rate of 3.59%, your monthly repayments will be £1,589. If you borrowed the same amount over the same term, but with an LTV of 90%, your two-year fixed interest rate would be closer to 2% – which equates to monthly payments of around £1,300.
Over just two years, you’ll pay almost £7,000 more in interest payments with the 95% Atom mortgage – so, if you can save up a larger deposit (or buy a cheaper property!) it can make a huge difference in the long term.
You should also be wary of 40-year mortgages: if you stick with a 40-year mortgage for the full duration, they cost tens of thousands more in interest than a 25- or 30-year mortgage. Make sure you change your mortgage every few years as your promotional interest rate lapses – and if you can pay off your mortgage early by overpaying, then that’s even better!