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95% mortgages

95% mortgages

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

Tobi Owens
From the Mortgages team
minute read
posted 6 JANUARY 2020

What is a 95% mortgage?

A 95% mortgage is a secured loan that covers 95% of a property’s value. So, if you wanted to buy a home valued at £200,000, a 95% mortgage would cover £190,000 of the cost, but you’d need to put down a deposit of £10,000. 95% mortgages are particularly useful for first-time buyers, who often struggle to save up more than a 5% deposit.

Should I save for a bigger deposit?

If you can save more than a 5% deposit, you’ll be able to access more competitive mortgage deals on the market. But just remember that house prices could go up in the time it takes to save a larger deposit, which could mean you’re back where you started.

How much can I borrow?

To give you a rough idea, 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  all have different criteria for accepting mortgage applicants, so if you’ve been turned down before this doesn’t mean you’ll never qualify for a mortgage.

How can I maximise my approval?

To qualify for such a large mortgage, you’ll probably need an excellent credit history – asking a bank or building society to lend you 95% of a property’s value is a big risk for any lender. 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 existing debts.

What are the disadvantages of a 95% mortgage?

While a 95% mortgage could be your ticket to becoming a home owner, it does come with drawbacks. 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. So if your £200,000 home went down in value by more than your 5% deposit, say by 6% to £188,000, then this would be negative equity.

Another disadvantage is that a 95% mortgage won’t give you access to the best deals around. That’s because the general rule of mortgages is: the bigger the deposit you can pay, the better the interest rate you’ll be offered.

Some lenders offering 95% mortgages will insist that you take out a ‘mortgage indemnity guarantee’ (MIG). It’s an insurance policy that protects the lender, in case you default on your mortgage payments.

If you fail to pay your mortgage repayments, you could risk your home being repossessed.

Finding the right deal for you

When you search with us, we’ll do the sums for you. Just tell us how much your 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 that suits you.

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