95% mortgages

Do you need a 95% mortgage? Rising house prices means that many people – particularly those looking to buy their first home – find it hard to save up more than a 5% deposit. But the good news is that, especially with the government stepping in to help people onto the housing ladder, this needn’t stop you buying the home of your dreams, however modest it may be. While the lowest mortgage interest rates may be reserved for borrowers with big deposits of around 40% or more, there are still plenty of competitive deals for buyers with just 5% to put down.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Guide to 95% mortgages

For most people, a mortgage is the biggest financial commitment they will ever make – so it’s important to get the right one. In some ways, being limited to deals allowing you to borrow up to 95% makes this process easier, because there are fewer mortgages to choose from. However, you still have to decide whether you want a fixed or a variable rate, for example. This guide will help you to choose the right 95% mortgage for your needs.

Should I save for a larger deposit?

In the past, some mortgage lenders offered mortgages of 100% of the property value. But to be accepted for a mortgage nowadays, you will need at least a 5% deposit.

Being able to put down a larger chunk of the home’s value will still give you access to more competitive deals available however, and for this reason, some people decide to save up for longer. But remember that if house prices rise while you are saving, you could find yourself back at square one. 

How much can I borrow?

In the past, lenders traditionally calculated the amount you could borrow as a multiple of your salary. Now though, most banks and building societies look at affordability based on your incomings and outgoings, and check your credit score, before they decide on a figure. Our mortgage calculator will give you a rough idea as to the amount you should be able to borrow.

How is the government helping?

The government’s Help to Buy mortgage scheme is aimed at any buyers who are only able to raise a 5% deposit. And while it was initially only available to those buying new-build properties, the terms of the scheme have since been widened so that more people can access 95% mortgage from lenders such as Lloyds Bank and Halifax.

To qualify, you need to be buying a property that is not worth more than £600,000 and to have a deposit of at least 5%. The government will then guarantee up to a further 15% of the property's value, in return for a fee from the lender offering the mortgage deal. However, as you will see from the tables, there are some 95% deals that are not Help to Buy yet more competitive so be mindful of this.

How do I choose the right 95% mortgage?

As mentioned above, one of the first decisions you need to make when choosing a mortgage is whether to go for a fixed or a variable rate deal.

With a fix, most of which last for two, three or five years, you don't need to worry about your monthly repayments changing due to interest rate fluctuations.

However, the rates offered can be slightly higher so take this into account. You will also need to pay an early repayment charge (ERC) if you need to get out of the deal before the end of the fixed term. 

When it comes to variable rates, meanwhile, you have the choice between trackers, which move in line with the Bank of England base rate, and discount mortgages that are linked to the lender's standard variable rate (SVR).

With either deal remember to factor in any fees when calculating the overall cost, and use MoneySuperMarket to compare your options quickly and easily.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
The figures and information provided by this tool are for illustration purposes only