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- What is a 95% mortgage?
- Can you get a mortgage with a 5% deposit?
- Are 95% mortgages only for first-time buyers?
- What are the pros and cons of 95% mortgages?
- Are 95% mortgages a good idea?
- Can I get a 95% mortgage?
- How to get a 95% mortgage
- Finding the best 95% mortgage for you
- What are the alternatives to a 95% mortgage?
- 95% Mortgage FAQs
You might want a 95% mortgage if you’ve been saving hard for a deposit, and think you may have enough to buy. Read on to learn more about these 5% deposit mortgages, including how easy they are to get and their pros and cons.
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What is a 95% mortgage?
A 95% mortgage allows you to borrow up to 95% of the value of your home, meaning you only need to put down a 5% deposit. So if you want to buy a home worth £200,000, to get a 95% mortgage you would need a deposit of at least £10,000. The remaining £190,000 is the amount you’d borrow through the mortgage.
You may also see 95% mortgages called 95% LTV mortgages, or 95% loan-to-value mortgages. Your loan-to-value (LTV) is the percentage of the value of the property you’re buying that will be covered by a mortgage. A 95% mortgage may also be referred to as a 5% deposit mortgage because that is the minimum deposit you need to get one.
Can you get a mortgage with a 5% deposit?
Most major banks and building societies offer 95% mortgages, so they are available. However, there are fewer options than if you have a larger deposit and can borrow at a lower LTV.
In April 2021 the government introduced the mortgage guarantee scheme to encourage lenders to offer mortgages to those with a 5% deposit. You, as a borrower, don’t need to apply for the scheme, but there are probably more lenders willing to offer 95% mortgages because it is there.
» MORE: See current mortgage rates
Are 95% mortgages only for first-time buyers?
95% mortgages are commonly used by first-time buyers, because of the low deposit requirement. However, 95% mortgages are also available if you’re moving homes, and if you’re remortgaging.
» MORE: First-time buyer mortgages
What are the pros and cons of 95% mortgages?
Advantages
The main benefits of 95% mortgages include:
- You could get on the property ladder with a relatively small deposit.
- You can buy sooner than if you had to save a larger deposit.
- You can start building equity in your property, which may allow you to remortgage to a new deal with a better rate in the future.
Disadvantages
Some of the potential drawbacks of 95% mortgages include:
- There aren’t many 5% deposit mortgages available.
- You are likely to face higher mortgage rates than if you had a larger deposit.
- Your monthly repayments are likely to be high because you’re borrowing a large percentage of the property value and interest rates tend to be expensive.
- You could fall into negative equity if property prices fall. This is where the amount you owe on your mortgage is higher than the value of your home, which can make it difficult to move and remortgage.
- You may have to pay your lender a higher lending charge because you’re borrowing at a higher LTV.
Are 95% mortgages a good idea?
Ideally you would want to save as big a deposit as possible, to give you a wider choice of mortgages and the chance of securing a better deal and interest rate. However, if you want to buy quickly, and perhaps feel house prices or mortgage rates might rise, a 95% mortgage may be right for you. Your priorities, and whether you can comfortably afford the repayments, are both key.
» MORE: Tips to cut your mortgage costs
Can I get a 95% mortgage?
Whether a lender will offer you a 95% mortgage depends on you passing the eligibility and affordability checks that you’d normally see on any mortgage. Your income, outgoings, existing debt, employment status and credit score will all be looked at and taken into account.
Before making a proper mortgage application, you could get a mortgage in principle from a lender. This will give you an idea of whether you’re likely to be offered a mortgage and the most you may be able to borrow. With most lenders this will be free of charge and won’t affect your credit score.
» MORE: Best mortgage lenders
How to get a 95% mortgage
You can shop around for 95% mortgages and apply to lenders directly, or alternatively, you might prefer to use a mortgage broker.
A broker can talk through your circumstances to help establish what type of mortgage will be best for you. They can also advise on the lenders who are most likely to look favourably on you as a prospective borrower. Some lenders only accept mortgage applications, or offer certain deals, through brokers or advisers.
» MORE: Getting mortgage advice
Finding the best 95% mortgage for you
95% mortgages are available on both a fixed rate or variable rate basis. Which you choose has the potential to affect the interest rate you pay now and in the future.
Fixed-rate mortgage
Opting for a fixed-rate mortgage gives peace of mind that your mortgage rate will remain the same for the period of time you’ve chosen to fix. This means your monthly repayments won’t increase if interest rates generally rise, making it easier to budget. Equally, however, you’ll miss out on cheaper repayments if rates were to fall. You may want to remortgage to a new deal at the end of the initial fixed rate period, or else you’ll move onto your lender’s standard variable rate, which tends to have a higher rate.
Variable rate mortgages
Choosing a variable rate mortgage, such as a tracker mortgage, means your mortgage rate could rise or fall. This works in your favour if interest rates decrease, as your monthly repayments will fall, but you’ll pay more if rates rise. Whether the rate you pay moves or not usually reflects movements in the Bank of England base rate.
» MORE: Compare current mortgage rates
What are the alternatives to a 95% mortgage?
Some of the other options you may want to consider as an alternative to a 95% mortgage include:
Shared Ownership
With the Shared Ownership scheme you buy a percentage of a property, and pay rent on the rest. A minimum deposit of between 5% and 10% is needed, but only in relation to the share of the property you’re buying, rather than the overall value.
H3: Right to Buy
The Right to Buy scheme gives eligible council tenants the chance to buy their home at a discounted price. Schemes are available in England, Scotland, Wales and Northern Ireland, but may have different rules. There is also the Right to Acquire scheme for housing association tenants.
Help to Buy
Aimed at helping buyers with smaller deposits, the Help to Buy equity loan scheme is still available in Wales, but not in England, Scotland and Northern Ireland.
Forces Help to Buy
Eligible members of the Armed Forces can use the Forces Help to Buy Scheme to get an interest-free loan to help cover the costs of buying a home.
First Homes scheme
Aimed at first-time buyers and key workers in England, the First Homes scheme offers the chance to buy a new-build home at a discount of up to 50%.
Deposit Unlock scheme
The Deposit Unlock scheme offers first-time buyers and home movers the opportunity to buy a new-build property from a participating developer with a 5% deposit.
Lifetime ISAs
When saving for a deposit, a 25% bonus is available from the government if you put your funds in a Lifetime ISA. You can save up to £4,000 a year to receive a maximum bonus of £1,000 annually.
95% Mortgage FAQs
It is definitely possible to get a 95% mortgage and most major lenders offer them. However, there are fewer options available than for borrowers with larger deposits, and it’s likely to be easier to get one if your credit score is good.
The amount you can borrow through a 95% mortgage will depend on your own personal circumstances. Your income, expenditure and credit score are some of the things lenders consider when making a decision.
It is possible to remortgage to a 95% mortgage but there are fewer options available than if you were to remortgage to a lower LTV. It can be more difficult to get a 95% remortgage deal because generally lenders would prefer for you to have accumulated some equity in your property during the course of your current mortgage.
The interest rates on 95% mortgages tend to be higher than those available on mortgages at lower LTVs. Providing a larger deposit may allow you to access more favourable mortgage rates.
The criteria you need to meet to be eligible for a 95% mortgage can differ between lenders, but the main requirement applying to all is that you have at least a 5% deposit relative to the value of your property.
The lowest deposit usually required is 5% of the value of the home you’re buying. This gives you the chance to get a 95% LTV mortgage. There are a handful of no deposit 100% mortgages available in the UK, but most tend to require the support of a guarantor.
If you can raise a larger deposit than 5%, you’ll have more mortgages to choose from and should be able to access deals with lower rates. The bigger your deposit, the better the mortgage rates available to you tend to get.
A family member or close friend may be able to help you get a 95% mortgage if they are willing to be your guarantor. A guarantor promises a lender that they will step in and cover your mortgage repayments if you don’t pay. In particular, this could help if you’re struggling to get accepted for a mortgage because your income is too low. However, your guarantor needs to be aware that their home could be at risk if neither of you makes the repayments.
» MORE: What are guarantor mortgages?
Yes, there are 95% mortgages available to use to buy a new-build property. You may want to apply directly to a lender or may prefer to use a mortgage broker to find the right deal.
It may be possible to get a 100% mortgage which doesn’t require you putting down a deposit but there are very few options available. To get one, you’ll usually need a relative or friend to be your guarantor, and promise to make your repayments if you don’t.
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Dive even deeper
What Does Loan-to-Value (LTV) Mean for a Mortgage?
The loan-to-value (LTV) ratio is your mortgage amount expressed as a percentage of the current value of the property being bought or remortgaged. The bigger your deposit or the equity you’ve built up in your property, the lower your LTV and the better the mortgage rates you may find are available to you.
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How to Get a Low Deposit Mortgage
The smallest deposit that you can buy a house with currently is 5%. A more common ‘low’ deposit is 10%, as borrowers have far more options if they are looking to borrow 90% of the property’s value, or LTV.
How to Get Help With a Mortgage Deposit
The larger your deposit, the less you have to borrow to cover the cost of your home, which often means lower interest rates. A few schemes and options are available to help build as big of a deposit as possible.