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95% mortgages

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. 

Tobi Owens
From the Mortgages team
4
minute read
posted 15 APRIL 2020

What is a 95% mortgage?

A 95% mortgage is a secured loan that covers 95% of a property’s value. If you want to buy a home valued at £200,000, a 95% mortgage will cover £190,000 of the cost. That means you’ll need to put down a deposit of £10,000.  
 
95% mortgages are good for first-time buyers, who often struggle to save up more than a 5% deposit. 

How to choose the right 95% mortgage

There are a few things to consider when you’re choosing a mortgage, such as:  

  • The interest rate 
    The interest rate is basically how much extra it’s going to cost you to borrow the money. You can choose between fixed rates, where the interest rate stays the same for a set period, or tracker rates. With a tracker rate, your interest rate will go up or down depending on the Bank of England base rate.  
     
    Some lenders offer special rates for new customers, so it’s worth shopping around.  
  • Interest only or repayment 
    You’ll also need to decide how you’re going to pay back the loan. An interest-only mortgage will give you cheaper monthly repayments, but leave you owing a large lump sum – the value of the property itself. They’re also potentially harder to get these days. 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. One of these is Shared Ownership, where you buy a share of the property (between 25% and 75%) and pay rent on the rest.  

Should I save for a bigger deposit?

If you can save more than a 5% deposit, you’ll 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. 
If you’re currently renting, there’s lots of ways you can start saving for a deposit:  

  • Switch your energy bills
    If you can get a better deal on your tariffs, you can save the difference every month.  
  • Cut your outgoings 
    Cancel any unnecessary direct debits and avoid buying bits and bobs that you don’t really need. Even cutting back on your daily coffee could save you around £800 a year. 
  • Open a savings account 
    If you start regularly putting money aside, you’ll find it soon adds up. But not all savings accounts are the same, so it pays to do your research.

How much can I borrow with a 95% mortgage?

This will be dependent on your personal circumstances. But mortgage providers could lend up to three or four times your salary, or slightly less than that if you’re basing the mortgage on two incomes. Your incomings and 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, check our mortgage calculator.

Can you get a 95% mortgage?

To qualify for a big mortgage, you’ll probably need an  excellent credit history. After all, asking a bank or building society to lend you 95% of a property’s value could be a big risk for them. You’ll also have to  prove you can afford the mortgage repayments, by showing the provider details of your income and outgoings, as well as any debts. 

What are the disadvantages of a 95% mortgage?

While a 95% mortgage could be your ticket to becoming a homeowner, there are some disadvantages. Firstly, with such a big mortgage, you run the risk of your home falling into ‘negative equity’. This is when the value of your home falls 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. 
 
Another problem with 95% mortgages is they 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
 
Some lenders offering 95% mortgages will insist that you take out a ‘Mortgage Indemnity Guarantee’ (MIG). This is an insurance policy that protects the lender if you default on your mortgage payments. 
 
If you fail to pay your mortgage repayments, you could risk your home being repossessed

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.

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.

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

If you meet the lender’s criteria, there’s no reason why you shouldn’t get a 95% mortgage on a new-build home. But you’ll need to prove you can afford the monthly repayments - and 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 a Help to Buy: Equity Loan, 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.  
 
If you’re buying in London, you might want to look into 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 build. You can then borrow the remaining 55% from a commercial mortgage lender.  

Can my family help me get a 95% mortgage?

There’s 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 the mortgage payments.

Compare 95% 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. 

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