95% mortgages

Finding a mortgage can be tricky, especially if you only have a small deposit. If you’re considering your options, here’s what you need to know about 95% mortgages.

Finding a mortgage can be tricky, especially if you only have a small deposit. If you’re considering your options, here’s what you need to know about 95% mortgages.

Daniel Evans
From the Mortgages team
13
minute read
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Posted 26 OCTOBER 2021

What is a 95% mortgage?

A 95% mortgage is a secured loan that covers 95% of a property’s value. You’ll need to provide a deposit for the remaining 5%. So, if you want to buy a home valued at £200,000, a 95% mortgage will cover £190,000 of the cost and you’ll need to put down a 5% deposit of £10,000. 95% mortgages are also sometimes referred to as 95% LTV mortgages. LTV stands for loan to value.
 
95% mortgages are good for first-time buyers, who often struggle to save up more than a 5% deposit, but you won’t have as much choice as those who can put down a bigger deposit. They also tend to come with higher interest rates.

What is the mortgage guarantee scheme?

Due to COVID-19, 95% mortgages have been very difficult to find. But they might become more widely available thanks to a Government-backed mortgage guarantee scheme to enable UK homebuyers to get mortgages of up to £600,000, with a 5% deposit.  

The scheme, which runs until December 2022, is designed to make lenders more willing to offer high LTV mortgages, with the Government compensating them for a portion of their losses if the property is repossessed.

Mortgages offered under the scheme must be for residential properties – not buy-to-lets or second homes – that cost £600,000 or less. They’ll be repayment mortgages, not interest-only mortgages, and buyers will have the option of an initial five-year fixed rate.

You don’t have to be a first-time buyer or buy a new-build property to access the scheme, but lenders will use their standard criteria to assess whether you’re able to pay the mortgage. For example, a credit score check and an affordability test.

How to choose the right 95% mortgage

There’s a few options to consider when you’re choosing a mortgage, including:   

Fixed rate or tracker mortgage 

If you choose a fixed rate mortgage, the interest rate stays the same for a set period, which can make it easier to budget. 

With a tracker mortgage, your interest rate will go up or down depending on the Bank of England base rate – so you’ll benefit if there’s a fall in the rate, but you’ll pay more if it rises.  

Some lenders offer special rates for new customers, so it’s worth shopping around. 

Interest only mortgage

An interest-only mortgage will give you cheaper monthly repayments, but leave you owing a large lump sum – the amount you originally borrowed. They’re also potentially harder to get these days. You’ll also need to have a plan in place to pay off the money you’ve borrowed once the mortgage ends.

Repayment mortgage

Repayment mortgages are more expensive when it comes to your monthly payments. But you’ll be repaying part of the whole loan each month – not just the interest.  

Help to Buy 

There’s a number of UK government schemes in place to help people get on the property ladder. These include Help to Buy equity loans and Shared Ownership, where you buy a share of the property (between 25% and 75%) and pay rent on the rest.

How much can I borrow with a 95% mortgage?

This will depend on your personal circumstances. Mortgage providers could lend up to four-and-a-half times your salary, or slightly less than that if you’re basing the mortgage on two incomes.

So, for example, if you were looking to buy a home worth £250,000 and you’d saved a 5% deposit of £12,500, you’d need to be earning around £52,000 a year to get a 95% mortgage.

Income isn’t the only thing mortgage lenders will look at, though. Your outgoings will also be taken into consideration, along with your all-important credit score. 

Mortgage providers have different criteria for accepting applicants, so if you’ve been turned down before this doesn’t mean you’ll never qualify for a mortgage.

If you want to find out how much you can borrow for a 95% mortgage, check our mortgage calculator.

Am I eligible for a 95% mortgage?

Lenders will look at a few things to decide whether to offer you a 95% mortgage, including:

Your credit history
You’ll probably need an excellent credit history to be accepted, as lenders will want to see that you’ve managed debt responsibly in the past. After all, asking a bank or building society to lend you 95% of a property’s value could be a big risk for them.

Ideally, if your credit history has been less than excellent, you should begin to try to improve it at least six months before you want to apply for a mortgage. It’s easy to forget that even things like paying your credit card bill a bit late can impact your credit score. So maybe set up some Direct Debits to ensure that everything is paid on time, for example.

Affordability
You’ll also have to prove you can afford the mortgage repayments by showing the provider details of your income and outgoings, including what you spend on bills and living costs, as well as any debts like loans or credit cards. 

Find out about mortgage eligibility in detail.

What are the advantages of a 95% mortgage? 

The main advantage of a 95% mortgage is that you’ll only need a 5% deposit. This means:

  • You’ll get on the property ladder sooner – with house prices rapidly rising, waiting to build up a larger deposit could mean missing out on buying a dream home that’s no longer within your reach.
  • You can start off with a small property, then move to a bigger home further down the line.
  • You might start to build up equity in your home, which means that once your current deal comes to an end, you could remortgage to a better deal.
  • More buyers will be able to access the housing market – this in turn will boost the economy and help the post-COVID recovery.
  • If there are more buyers, then more sellers are likely to be tempted to trade up and put their homes on the market, so there’ll be more properties to choose from.

What are the disadvantages of a 95% mortgage?

While a 95% mortgage could be your ticket to becoming a homeowner, there are some disadvantages.

Interest rate
95% mortgages probably won’t give you access to the best deals around. The general rule of mortgages is the bigger your deposit, the better the interest rate. The best mortgages are reserved for those with a 35% to 40% deposit, but even if you can save between 10% and 20% you’ll find you have a choice of more deals and better rates. 

Negative equity
With such a big mortgage, you run the risk of your home’s value falling below the value of your mortgage. For example, if your £200,000 home dipped in value by 6% to £188,000 – a decrease that would be more than your 5% deposit – you’d be in negative equity. In other words, you’d owe more than your home is worth.

Higher lending charge (HLC)
This is a fee that some lenders charge for mortgages where the loan to value is very high, usually over 80% of the property’s value. The charge might be worked out as a percentage of the amount that’s over the lender’s limit. So if you had a 95% mortgage on a home valued at £100,000, you might pay a 5% HLC on £20,000. Alternatively, the HLC can be charged at 1.5% of the mortgage. 

Make sure you fully understand all the charges that go along with your mortgage so that you know you can afford to pay it.

Your home may be repossessed if you do not keep up repayments on your mortgage.

95% mortgage rates
The interest rate you can expect to pay on a 95% mortgage will depend on a variety of factors. These include how much you earn, your credit history and whether you can provide a guarantor. As a general rule, the lower the loan to value (LTV), the better interest rates you’re likely to be offered. So if you can save a bigger deposit, you’re likely to get a better deal. A high LTV mortgage represents a greater risk for the lender and the rates charged reflect this.

Should I save for a bigger deposit?

If you can save more than a 5% deposit, you’re likely to be able to access cheaper mortgage deals. But remember, house prices could rise during the time it takes to save, which might mean you’re back where you started.

Alternatives to 95% mortgages

There are alternatives to 95% mortgages, particularly if you’re a first-time buyer or are on a lower income. If your household earns £80,000 a year or less (£90,000 in London), you could qualify for shared ownership, where you buy a share of the property and the government owns the rest.  
 
If you’re 55 or over, you could qualify for Older People’s Shared Ownership. If you have a disability, Home Ownership for People with Long-Term Disabilities (HOLD) might be right for you.

What’s the maximum LTV you can get? 

95% LTV is the maximum you can get right now. LTV or loan to value is the percentage of the property’s value that’s covered by your mortgage. This means that your mortgage provider owns 95% of your property and you own 5% (your equity). The higher your LTV, the more your monthly repayments will be. 

If the worst happens and you can’t keep up with the repayments, lenders have the option of repossessing your home to recoup their losses. The less equity you have, the less they’ll be able to get back so they tend to insist on tougher terms. That’s why the most attractive mortgage deals are offered to those with a lower LTV, for example, 70%.

Can you get a 95% mortgage on a new build home?

If you meet the lender’s criteria, you may be able to get a 95% mortgage on a new-build home. But you’ll need to prove you can afford the monthly repayments – and that you could do so even if interest rates were to rise.   

Sometimes it’s easier to get a mortgage for a new build. For example, with the Help to Buy: Equity Loan scheme, the government could lend you 20% of the cost of a new-build home. If you have a 5% cash deposit, you could then borrow the remaining 75% from a mortgage lender. Just be aware that lenders participating in the government-backed mortgage guarantee scheme won’t offer a 95% mortgage on a new-build home.  

If you’re buying your first home in London, you might want to look at the London Help to Buy scheme. With a 5% deposit, you can get a UK government loan for up to 40% of the purchase price of a new home. You can then borrow the remaining 55% from a mortgage lender.

Can I remortgage with a 95% mortgage? 

Yes, you can remortgage, but it may take you a while before you can. Most people look to remortgaging once they’ve built up a fair bit of equity in their property. This will bring down their LTV, so they can shop around for a more competitive deal. 

If you have a 95% mortgage, you’ll be starting out with just 5% equity. If the value of your property goes up significantly, then it might be worth moving to a new mortgage with a lower LTV once your current deal ends. 

But if the value of your property goes down, you’ll be in ‘negative equity’ – this means it’s worth less than the mortgage you have on it. In this case, you might not be able to remortgage and you’ll move on to your lender’s standard variable rate (SVR) when your current deal comes to an end.

How has the coronavirus pandemic affected 95% mortgages?

COVID-19 hit 95% mortgages very hard as lenders withdrew many deals that had been available to people with smaller deposits. But thanks to the mortgage guarantee scheme, which runs until the end of December 2022, many of the UK’s big banks are now offering 95% mortgages.

Can my family help me get a 95% mortgage?

There are a number of ways your family could help you get a 95% mortgage. The obvious one is to lend you the money for the deposit. Of course, for many people this isn’t an option.  
 
However, a family member could step in by acting as a mortgage guarantor. That means they’ll agree to cover the repayments if you miss them for any reason. Having a mortgage guarantor can help you access better interest rates, but there are certain conditions. For example, your guarantor must own their home outright, or at least have plenty of equity in it. They must also earn enough to cover your mortgage payments, as well as any of their own.

How do I apply for a 95% mortgage? 

You can apply for 95% mortgage either through a mortgage broker or by contacting the lender directly. In most cases, you’ll need to make an initial appointment with one of their specialist mortgage advisors.  

You’ll need to go through the same affordability and credit checks as you would with any type of new mortgage. 

There’s a number of lenders now offering 95% mortgages under the government-backed mortgage guarantee scheme. The scheme will run until 31 December 2022, so you’ll need to get your application in by then. 

The scheme is available for those buying their first home and existing homeowners looking to move. You can apply for a 95% mortgage under the mortgage guarantee scheme if: 

  • The value of your new home is no more than £600,000
  • It’s not a ‘new-build’ property
  • It will be your only home – not a second home or buy-to-let
  • You take out a repayment mortgage, not an interest-only mortgage
  • You don’t apply for any additional borrowing on your mortgage for the next seven years

Compare mortgages

When you search for mortgage deals with us, we’ll do the hard work for you. Just tell us how much the property’s worth and how much you want to borrow, and we’ll show you what’s on offer. Compare now and find a mortgage deal that suits you. 

If you need help getting a 95% mortgage, we’ve partnered with London & Country Mortgages Ltd (L&C)** to provide you with fee-free mortgage advice. Get in touch with one of their advisers here. 

Go to L&C mortgages 

About London & Country Mortgages Ltd (L&C)
**London & Country Mortgages Ltd (L&C) are a multi-award winning mortgage broker with over 20 years’ experience in helping people secure their perfect mortgage. Advice is provided by L&C, who are authorised and regulated by the Financial Conduct Authority (143002).
L&C are not part of Compare the Market Limited. Compare the Market receive a % of the commission that our partner London & Country earns. All applications are subject to lending and eligibility criteria.L&C will not charge you a broker fee should you decide to proceed with a mortgage.

Frequently asked question

Which banks offer 95% mortgages?

Thanks to the mortgage guarantee scheme, many of the UK’s leading banks are now offering 95% fixed rate mortgages to eligible buyers. These include: 

  • Barclays
  • Halifax
  • Lloyds
  • HSBC
  • Santander
  • Natwest
  • Virgin Money 

Correct as of October 2021 

Just be aware that they each have their own application criteria – so, terms and conditions may vary between individual banks.

How long will 95% mortgages last?

The mortgage guarantee scheme will run until 31 December 2022. But that’s not to say that 95% mortgages won’t continue after that. More lenders are starting to offer 95% deals on the open market and may well continue to do so even when the scheme has ended.

Can I get a 100% mortgage?

It’s not impossible to get a mortgage with no deposit at all, but they’re far less common than they used to be. 

Your best bet for a 100% mortgage is a guarantor mortgage. You’ll need to find a trusted family member or friend who will act as a guarantor and guarantee to take over your mortgage repayments if you can’t pay it yourself. Guarantor mortgages typically come with tighter restrictions and a much higher interest rate as there’s no equity in your home.

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