Ten ways to maximise your mortgage chances
Here are ten top tips to help improve your likelihood of being accepted for a competitive mortgage deal.
Compare 95% mortgages from the whole market
95% mortgages enable you to borrow up to 95% of the purchase price of the property you want to buy, with the remaining 5% made up of your deposit.
An arrangement such as this will sometimes be referred to as a 95% LTV mortgage, where LTV stands for ‘loan-to-value’ ratio. In other words, the mortgage is for 95% of the property’s market price.
For instance, if you take out a 95% mortgage to help you buy a house that is valued at £100,000, you will end up borrowing £95,000.
The lowest mortgage interest rates are reserved for borrowers with large deposits of around 40% or more.
However, a 5% deposit could help you get on the property ladder sooner, as you’ll need to save less of a lump sum. Just be aware that a smaller deposit means that your choice of mortgages will be more limited.
If you can put down a bigger deposit on a property, you’ll find that you have a wider choice of mortgages with lower interest rates. So if you can wait, it could be worth taking the time to save up a bit more.
But if you are renting at the same time as saving up for a deposit, you may feel like you’re wasting money, and you may rather get on the property ladder as soon as possible. Also, if house prices were to rise, you could find it takes you even longer to save up enough of a deposit.
It’s important to consider all the options before deciding whether to put down a 5% deposit and take out a 95% mortgage. Ultimately, what you end up opting for will depend entirely on your personal needs and circumstances.
When it comes to deciding how much they’re prepared to lend you, banks and building societies will take your income, your outgoings, and your credit score into account.
This will influence whether they offer you a 95% loan-to-value (LTV) mortgage or whether the maximum LTV they’re prepared to loan you will be less.
You can take a look at our mortgage calculator to get a good idea of how much a bank would be willing to lend you. At MoneySuperMarket, we are always on a mission to help you find the best mortgage deal for you.
The amount you’ll be able to borrow through a mortgage will depend on several financial factors including your income and outgoings, your credit rating and the mortgage provider’s own lending criteria.
As a guide, banks and building societies in the UK might be prepared to lend up to 4 ½ times your income. For example, if you earn £40,000 a year, you might be able to borrow around £180,00 on a mortgage. If you are buying as a couple, then the amount you can borrow is often a slightly lower multiple of your joint income.
Each application will be assessed on its own terms for affordability, but our mortgage calculator can help you work out how much you might be able to borrow.
95% mortgages come with a variety of positives. If you decide to opt for this type of mortgage, you can expect to benefit from the following advantages:
With a 95% mortgage, you will only need a relatively small deposit to secure the house you want and get yourself on the property ladder
If house prices rise and you accumulate equity in your property, you may have the chance to remortgage to a preferable deal and interest rate
You may find that taking out a 95% mortgage comes with cheaper monthly instalments than your rent, especially if you opt for a longer loan
95% mortgages have drawbacks too. Here are some of the aspects to take into account if you’re thinking about selecting this type of mortgage:
You may only be able to borrow a limited amount of money and there may be fewer options because 95% mortgages are often viewed as higher risk
Only putting down a 5% deposit means you won’t be able to gain access to the best mortgage deals on the market and could face higher interest rates
When the LTV is 90% or more lenders may ask you to pay a higher-lending charge (HLC) which helps protect them should you default on the mortgage
In the Spring Budget 2021, the government announced a new 95% mortgage guarantee scheme. The scheme enables home buyers to secure a mortgage with a 5% deposit, with the government underwriting 95% mortgages. It runs until 31st December 2023 and is available to all home buyers (not just first-time buyers) on properties worth up to £600,000.
Major lenders including Barclays, HSBC, NatWest, Santander and Virgin Money all agreed to participate. But while the 'guarantee' is from the government to the lender should you default on the deal, it is not a guarantee you’ll be offered a 95% mortgage in the first place. Each application will still be assessed on its own merits.
Mortgage providers, including banks and building societies, are encouraged to offer 95% mortgages based on the government guaranteeing outstanding loans.
It means that lenders have a government guarantee in the event the borrower is unable to meet their monthly mortgage repayments. They are also ‘protected’ if house prices fall and the property is worth less than the outstanding mortgage loan, which is known as negative equity. Through the scheme, the government agrees to cover these risks, which means lenders will be more open to lending to homebuyers with a small deposit.
The same affordability checks will be carried out when you apply for this type of mortgage. Bear in mind, though, that having a 5% deposit will not necessarily be enough to secure the loan, even through this scheme. Homebuyers must prove that they can comfortably afford the monthly repayments after other essential spending has been covered. You can get an idea of how much 95% mortgages can cost you by using our affordability calculator.
When choosing a 95% mortgage, you’ll need to decide whether you want to take out a fixed-rate or variable-rate loan.
A fixed-rate mortgage usually lasts between two and five years. This means you won’t have to worry about interest rates rising and your monthly payments going up during that period. But if you want to get out of the deal before the fixed term ends, you’ll probably have to pay an early repayment charge (ERC).
At the end of the mortgage term, you should look for another competitive deal. If you do nothing, you will be transferred onto your lender’s standard variable rate, which is likely to be more expensive.
Lenders offer standard variable-rate mortgages, which are usually their most expensive. In addition to cheaper fixed-rate deals (see above), you can consider a tracker mortgage. In this case, the interest rate you pay is linked to an external benchmark, usually the Bank of England’s base rate.
As the base rate moves, so does the tracker rate. The rate might be set at “base rate plus 1%”, for example, meaning it will be 1% more than whatever the base rate is at the time.
You can compare 95% mortgages from different providers and see your monthly mortgage payment breakdown for each deal by using MoneySuperMarket’s mortgage comparison tool.
Enter your borrowing requirements, the length of time you want to borrow for, and the value of the property you’re looking to buy to see what the LTV percentage would be.
The mortgage quote results will then show you the maximum LTV each lender is prepared to offer you. It will also present you with the type of mortgage available, plus any extra fees you’d need to pay. With all this information at hand you can then see if 95% mortgages would be the right solution for you.
It’s important to remember that the comparison tool doesn’t take into account your financial situation or your credit history. It’s also worth mentioning that any LTV or interest rates you’re offered when you come to apply for a mortgage may end up being different.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There is no universal answer to this question, as this will depend completely on your personal situation and needs. Generally, lenders can give out up to four-and-half times your salary. But there are many different factors that they’ll want to take into consideration, including your income.
For instance, they will also want to have a look at your outgoings and check your credit score more in general. This way, they will understand whether you are a reliable borrower and decide how much money they feel comfortable lending you.
Yes, they can. But it doesn’t necessarily have to be one of your parents – any family member or close friend who is happy to act as a guarantor to help you get a 95% mortgage.
As a guarantor, they’ll be taking huge financial responsibility, as they will have to cover the costs of your debt if you can’t pay back the loan yourself. However, a guarantor mortgage can help you access better deals and interest rates. Read our page for more on guarantor mortgages.
If you’re looking to get on the property ladder and struggling to save more than 5% for a deposit, consider one of these options.
Shared ownership: Allows you to buy a portion of a property (usually between 25% and 75%) and pay rent on the remaining share.
Guarantor mortgages: A family member or close relative can act as your guarantor, offering their own property or savings as security.
Rent-to-buy: Renting a property with the option to buy it at a later stage, with a portion of the rent going towards a deposit.
Help from family: Relatives can gift or loan money for a larger deposit, enabling you to access more favourable mortgage rates.
Lifetime ISA: Save up to £4,000 per year in a Lifetime ISA and receive a government bonus of 25%, which can be used towards a deposit.
It can be possible to buy a property with a 5% deposit in the UK. Several mortgage lenders offer 95% loan-to-value mortgages, allowing buyers to put down a 5% deposit. However, availability and eligibility criteria may vary, and it's important to consider factors such as affordability and potential higher interest rates associated with higher loan-to-value lending.
The lowest deposit you can typically put on a house in the UK is 5% of the property's value. Some mortgage lenders offer 95% loan-to-value mortgages, allowing buyers to secure a home with a 5% deposit. However, availability and eligibility criteria may vary across lenders and specific circumstances.
You may be able to find 100% mortgages where you don’t need to put down a deposit, but these generally come with strict financial conditions, such as being backed by a guarantor in case you can’t meet repayments.
Getting a 5% mortgage in the UK depends on the current market conditions and mortgage provider's view of the risk involved in offering these deals.
As such it’s always worth comparing the leading lenders in the market to see what is on offer. Understand that even if 5% mortgage deals are advertised, your eligibility will depend on factors like creditworthiness and affordability.
