95% mortgages

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What is a 95% mortgage?

A 95% mortgage enables 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.

A 5% deposit could help you get on the property ladder sooner, as you’ll need to save less of a lump sum.

The lowest mortgage interest rates are reserved for borrowers with large deposits of around 40% or more, but there are competitive deals for buyers with just 5% to put down.

Just be aware that a smaller deposit does mean that your choice of mortgages will be more limited.

Should you continue to save for a larger deposit?

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’d prefer to get on the property ladder as soon as possible. And 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 a 95% mortgage, or whether to wait and continue to save.

Can you get a 95% mortgage?

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.

Average loan to value of mortgages

According to MoneySuperMarket data correct as of August 2019

Choosing the right 95% mortgage

When choosing a 95% mortgage, you’ll need to decide whether you want to take out a fixed-rate or variable-rate loan.

Fixed-rate mortgage

A fixed rate mortgage usually lasts between two and five years and 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 – known as an 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.

Variable-rate mortgage

Lenders offer standard variable-rate (SVR) mortgages, which are usually their most expensive. In addition to cheaper fixed-rate deals (see above), you can consider a tracker mortgage, where the interest rate you pay is linked to an external benchmark, usually the Bank of England base rate.

As the base rate moves, so too does the tracker rate. The rate might be set at “base rate plus 1%”, for example, meaning it will always be 1% more than whatever the base rate is at the time.

A 5% deposit and Help to Buy

The government’s Help to Buy equity loan scheme can be a great helping hand for those who are struggling to raise a deposit that’s bigger than 5%.

The Help to Buy scheme can make it easier for first-time buyers and home movers to buy a property with a 5% deposit, and the government will then loan you up to an additional 20% of the house value – or 40% if you’re buying in London.

The scheme can only be used for new-build properties and the loan is interest-free for the first five years.

The Help to Buy shared ownership scheme can also give you the chance to buy a share of your home and pay rent on the remaining share with a low deposit.

Visit the government’s site to find out more about Help to Buy schemes and to see if you qualify.

How first-time buyers fund their purchase

According to MoneySuperMarket data correct as of August 2019

Comparing 95% mortgage quotes

You can compare 95% mortgage quotes from different providers, and you can also 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, and the type of mortgage available, plus any extra fees you’d need to pay. You can then see if a 95% mortgage would be right for you.

It’s important to remember that the comparison tool doesn’t take into account your financial situation or your credit history, and any LTV or interest rates you’re offered when you come to apply for a mortgage may be different.

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