If you’re a First-Time Buyer or a home mover, a 95% mortgage will enable you to borrow up to 95% of the buying price of the property you want to buy, with the remaining 5% made up of your deposit.
A 95% mortgage is an arrangement with the lender, and sometimes it can be referred to as a 95% LTV mortgage, where LTV stands for ‘loan-to-value ratio. This technically means the mortgage is for 95% of the property’s market price.
A 5% deposit could help you get on the property ladder sooner, as you’ll need to save less of a lump sum. However, this can have bigger consequences. More on this later.
Borrowers with large deposits have the lowest interest rates reserved for them, but there are competitive deals for buyers with just a 5% deposit to put down. Of course, with every small deposit, your choice of a mortgage will be more limited.
Your parents, grandparents, guardians, whoever had or currently has a mortgage knows this too well, and their advice could be beneficial for you. If you can put down a bigger deposit on a property you will find that you have a wider choice of mortgages with lower interest rates.
So, if you can wait that little bit longer, it could be worth taking the time to save up a bit more. However, if you’re currently renting at the same time as saving for a deposit, you may feel like you’re wasting money, and you might prefer to get onto the property ladder sooner rather than later. Oh, and if the house process were to rise, you could find it takes you even longer to save up enough of a deposit.
It’s important to consider all the options before deciding whether to put down a 5% deposit and take a 95% mortgage, or whether to wait and continue to save.
When it comes to deciding how much lenders are prepared to lend you, banks and building societies will take your income, outgoings, and your credit score into account. However, this will influence whether they offer you a 95% mortgage, or the maximum LTV they’ve prepared to loan you will be less.
Like many industries, the coronavirus pandemic has affected the financial market, including mortgages, and most lenders withdrew their high loan to value products in 2020. The picture is now more positive and many 90% and 95% loan to value deals are available again.
Here at MortgagesRM – Doncaster Fee Free Mortgage Advisor, we have a mortgage calculator which you can use to get a better understanding of how much a bank would be willing to lend you.
The 95% Mortgage Scheme is very similar to the old Help to Buy Mortgage Guarantee Scheme, which closed to new applicants in November 2019. However, under the new scheme, first-time buyers taking out a mortgage should not see any practical difference to their mortgage journey.
Lenders will be encouraged to offer 955 mortgages based on the government guaranteeing outstanding loans. This means lenders have a government guarantee in the event the borrower is unable to meet their monthly mortgage repayments, or if house prices fall and the property is worth less than the outstanding mortgage loan, which is known as negative equity.
Through the scheme, the government agrees to cover these risks, which means lenders will be more open to lending to homebuyers with a small deposit.