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About Mortgages

If you have limited financial resources at your disposal for a deposit a 95% loan-to-value (LTV) mortgage could be an option.

Think carefully about securing debt against your home. Your home may be repossessed if you do not keep up repayments on your mortgage

Last updated on 08 February 2022.

What is a 95% mortgage?

A 95% mortgage – or, more formally, a 95% LTV mortgage – sees you as the prospective home buyer supplying a deposit worth at least 5% of the value of the property you want to buy. The remaining money – that’s the other 95% – would come in the form of the mortgage itself.

For example, if you wanted to buy a home worth £300,000, for a 95% mortgage you would need a deposit of £15,000. If the property cost £200,000, meanwhile, you would need £10,000, and if it cost £500,000, you would need a 5% deposit of £25,000.

These types of mortgages became available to first-time buyers and current homeowners alike in April 2021, when the government introduced a new 5% deposit scheme. This is also known as the mortgage guarantee scheme.

When looking for a low deposit mortgage in general, you will usually be offered the following types of mortgage rates:

  • Fixed-rate – usually lasting for two to five years. This kind of mortgage rate will mean you pay the same amount in monthly instalments for the duration of the fixed period of time. Fixed-rate mortgages are typically introductory offers; you will normally be moved to a standard variable rate (SVR) once it has ended. This is unless you move to a new fixed-rate deal with your existing lender, or a new provider.
  • Standard variable rate – this type of mortgage rate will see your monthly repayments go up and down depending on wider interest rates, and at your mortgage provider’s discretion. Some months you may pay more than a fixed-rate mortgage, while other months you may pay less.
  • Discounted variable rate – this is a cheaper version of the lender’s standard variable rate, and like a fixed interest rate, will only apply for a set period of time. Like an SVR, meanwhile, your monthly repayments will potentially rise and fall alongside the rate itself.
  • Tracker rate – this is another type of variable rate, which ‘tracks’ the Bank of England’s base rate. When the base rate moves, so too will your mortgage rate. To form your tracker rate, your lender will normally add 1% to 3% on to the base rate. Like fixed rates and discounted variable rates, this is usually an introductory offer with a set end date.

Will I pay a higher rate if I have a low deposit mortgage?

One of the downsides to a low deposit mortgage, such as a 5% deposit mortgage, is that you will end up paying higher interest rates. This is because lenders will see you as a higher-risk mortgage candidate.

If you can afford to provide a larger deposit, it may be worth considering in order to potentially access more favourable mortgage rates.

» COMPARE: 90% LTV mortgages

Can I get a mortgage with a 5% deposit?

To successfully apply for a 95% LTV mortgage, you need more than just a 5% deposit. Firstly, you will need to pass the lender’s standard eligibility criteria. This will include, but is not limited to:

  • Meeting the lender’s affordability and credit checks. This check will be based on your income, spending and credit score.
  • Supplying the correct forms of identification, as well as evidence of income and your deposit.
  • Proving your deposit comes from an approved source. Being within the maximum and minimum age requirements.

On top of this, a 95% mortgage comes with another set of criteria specific to the government 5% deposit scheme. For example:

  • The cost of your property must not exceed £600,000 (some lenders will have a lower maximum value).
  • Your prospective home cannot be a new-build property.
  • You must be applying for a residential mortgage, not a second-home or buy-to-let mortgage.
  • You must be applying for a repayment mortgage, not an interest-only mortgage.

Some lenders may have additional restrictions that apply to 95% LTV mortgages.

What are the advantages and disadvantages of a 95% LTV mortgage?

One positive of a low deposit mortgage is that it could make buying a house a little easier. It takes less time to save for a 5% deposit than a 10% deposit, which means that you may be able to buy a home more quickly.

» MORE: How to save for a mortgage deposit

There are some important downsides to be aware of, however. First, you won’t have the same level of choice if you only have a small deposit, as fewer lenders offer low-deposit mortgages.

Second, you will pay more too. Lenders view low deposit mortgages, such as a 95% LTV mortgage, as riskier than those for buyers who have more significant deposits in place. As a result, not only will you have fewer products to choose from, but you will also have to pay a higher interest rate. This means that your monthly repayments will be bigger and therefore the overall cost of your loan will be higher.

Finally, the risk of negative equity is greater with a low deposit mortgage. This happens when house prices fall, and the size of your outstanding mortgage is greater than the value of your home. Being in negative equity can make it nearly impossible to remortgage to a new deal when your initial fixed rate ends. At the same time it will also be difficult to move house as the money raised from the sale will not be enough to clear your existing mortgage, let alone provide a deposit to use on the house you want to buy.

Dropping into negative equity is easier to do when you buy with a low deposit, since the value of your home only has to fall by a relatively small amount. For example, with a 95% LTV mortgage, the property only has to fall by 6% to end up in negative equity, but with an 85% LTV mortgage, it would have to fall by 16% for you to end up in that position.

Who offers 95% mortgages?

A host of lenders announced 95% LTV mortgages following the launch of the mortgage guarantee scheme in April 2021.

You can shop around and apply to lenders directly or, you might prefer to use a mortgage broker. A broker is an independent adviser who can talk through your circumstances to help you establish what type of mortgage will be best for you and advise you on which lenders are most likely to look favourably on a mortgage application from you. However, brokers often charge a fee for their advice, so that’s an additional cost to bear in mind.

We can help you find a 95% LTV mortgage with our NerdWallet mortgage comparison tool. All you need to do is follow these simple steps:

  1. Answer a series of short questions related to your mortgage situation.
  2. Let the tool search the mortgage market for you.
  3. Compare the tailored results.
  4. Select the mortgage that best matches what you want.
  5. Apply directly or through a mortgage broker, depending on the lender.
  6. Or, speak to a mortgage adviser.

95% LTV Mortgages – 5% Deposit Mortgages FAQs

Are 95% mortgages available?

There are always more mortgage options open to you if you are borrowing at a lower loan to value. If you are looking for a 60% LTV mortgage, for example, there will be plenty of lenders to choose from.

This isn’t the case for borrowers with only a small deposit, with fewer lenders providing deals above 90%. The pandemic has caused lenders to become even more cautious about lending to these borrowers to the point that there are very few deals around or above 90% LTV.

That’s why the government launched a mortgage guarantee scheme in April, which covers a portion of the losses incurred on mortgages offered between 91% and 95% LTV should the borrower fall behind on their repayments to the point that the lender has to repossess the property.

The idea is that this will make these deals less risky to offer for lenders and hopefully become more common. A similar scheme announced by the coalition government back in 2013 worked in much the same fashion.

What is the lowest deposit for a mortgage?

The smallest deposit you can buy a house with is currently 5%. A more common 'low' deposit is 10%, as borrowers have far more options if they want to borrow 90% of the property's value.

What is considered a low deposit on a house?

The minimum deposit you can buy a house with is currently 5%. There was a time when you could easily borrow the entire sum needed to purchase a property, but the financial crash put paid to those days, meaning borrowers need to stump up at least some money as a deposit now.

It’s important to note that some products are marketed as 100% LTV mortgages, but these are reserved for those with a guarantor or existing customers and under specific conditions.

Very few lenders offer mortgages to borrowers with such small deposits, which is why the government has now launched a mortgage guarantee scheme, designed to push more lenders to provide these mortgages.

What is the 5% mortgage scheme?

The 5% mortgage scheme, otherwise known as the government mortgage guarantee scheme, allows first-time buyers and current homeowners to apply for a 5% deposit mortgage.

There are a number of criteria to be met when applying for the 5% mortgage scheme, including the value of your property being £600,000 or under. You can also not buy a property classed as a new build via the scheme, nor can you get a second home or buy to let under the scheme.

What is an LTV?

LTV stands for loan to value and denotes the ratio of how much you need to borrow compared to the cost of the property. So, for example, if you're buying a property for £150,000 and you have a deposit of £30,000 you only need to borrow £120,000. And because £120,000 is 80% of £150,000, it means you would need an 80% LTV mortgage.

Can first-time buyers get a 95% mortgage?

Yes, first-time buyers can get a 95% mortgage with a 5% deposit. On top of the mortgage guarantee scheme, there are a number of other forms of assistance available for first-time buyers.

For example, buyers with only a 5% deposit can also use the Help to Buy Equity Loan scheme. Qualifying buyers can get an equity loan from the government worth up to 20% of the property’s value, which is interest-free for five years, and then complete the purchase with a 75% LTV mortgage.

There are, however, regional caps in place for the value of the property you can purchase through the Help to Buy Equity Loan scheme.

Can you get a mortgage with a 5% deposit?

Yes, thanks to the mortgage guarantee scheme, it is possible to get a mortgage with a 5% deposit. This would mean you would be applying for a 95% LTV mortgage, i.e. you would be borrowing 95% of the value of the property.

What happens if you default on a 95% LTV mortgage?

Defaulting on a mortgage has serious financial ramifications, given that mortgages are major financial commitments. You might be forced to sell assets you own to clear outstanding debts and may struggle to acquire future finance because of a lower credit score.

How long will 95% mortgages last?

The current mortgage guarantee scheme helping to provide 95% mortgages will be open for new mortgage applications until December 2022.

Are 95% mortgages only for first-time buyers?

The 95% mortgages available thanks to the mortgage guarantee scheme announced in the April 2021 Budget are open to both first-time buyers and current homeowners. However, you cannot buy a second home or buy to let property through the scheme.

Can you get a mortgage with a low deposit?

Yes, it is possible to get a mortgage with a low deposit. The mortgage guarantee scheme means you can apply for a mortgage with as little as a 5% deposit.

Can I get a mortgage with no deposit at all?

It is possible to get a 100% mortgage. However, only a few lenders offer 100% LTV mortgages, and at present they are all guarantor mortgages. This means you would need someone with property or savings as a security to act as your guarantor, i.e. promise to pay your mortgage if you are unable to, in order to successfully apply for a 100% mortgage.

» COMPARE: 100% mortgages

Is a 5% deposit mortgage a good idea?

Saving for a 5% deposit mortgage will mean you can afford to buy a property earlier than if you were aiming for a mortgage with a bigger deposit.

At the same time, you should be aware that with a 5% deposit mortgage:

  • You will likely be paying a higher interest rate, so your monthly repayments will cost more.
  • You will stand a greater risk of falling into negative equity.
  • You may find it more difficult to remortgage in the future.

What's the minimum deposit for a house?

Unless you are considering a 100% mortgage, which would require a guarantor to support your application, the minimum deposit to buy a property is 5%. However, the more money you can put down as a deposit, the smaller your monthly repayments will likely be and the more products available to you.

» MORE: How much should I put down on a deposit?

What’s the difference between interest-only and repayment mortgages?

Interest-only mortgages mean the borrower is required to repay interest only during the length of the mortgage term. When it ends, they are expected to make a lump sum payment to pay off the outstanding loan. Repayment mortgages simply pay off the loan in instalments, with interest on top.

» COMPARE: Interest-only mortgages

Are early repayments costly to make?

While it might seem more cost-effective to pay off your mortgage, providers may try to make it more costly through an early repayment charge. Check terms and conditions to see what a provider’s policy is on early repayment charges.

NerdWallet has selected Koodoo to provide you with this information-only online comparison service on a non-advised basis. NerdWallet will receive a share of the commission that Koodoo earns from the lender or from our partnered broker, Fluent Mortgages.

Koodoo is the trading name of Mortgage Power Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 845978), and is a registered company in England and Wales (company registration number 10978680), with a registered address at Scale Space, 58 Wood Lane, London, W12 7RZ

Fluent Mortgages Ltd is authorised and regulated by the Financial Conduct Authority (FRN 458914), and is a registered company in England and Wales (company registration number 10978680), with a registered address at 102 Rivington House, Chorley, New Road, Horwich, Bolton, BL6 5UE

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