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.

What is a 95% mortgage?

It’s a loan that covers 95% of a property’s value. So, if you wanted to buy a home valued at £200,000, then a 95% mortgage would cover £190,000 of the cost.

Who can get a 95% mortgage?

Because the loan amount is very high, 95% mortgages are few and far between – but they are still available.

They’re particularly helpful to home buyers with a small deposit, such as anyone registered with the government’s Help to Buy scheme or first-time buyers (some providers will only offer 95% mortgages to the latter).

Having a 5% deposit and asking a bank or building society to provide the remaining 95% of the house price is a big risk for any lender. With this in mind, to qualify for such a large mortgage you’ll probably need an excellent credit history. 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.

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. As a rough guide, mortgage providers are usually willing to lend up to three or four times your salary, or slightly less than that if you’re basing the mortgage on two incomes.

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.

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How can I find a mortgage deal that’s right for me?

The deal that’s right for you is one that takes into account all your financial commitments and gives you a mortgage that you can comfortably pay back each month, leaving you with enough of a buffer for any other eventualities.

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.

If you’re still not sure what type of mortgage is right for you, then give moneyQuest Mortgage Brokers Ltd a call on 0141 243 5633. They’re experts in the field and can give you all sorts of helpful advice. Alternatively, take a look right now and search for a mortgage to suit you.

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