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95% mortgages

Find out how 95% mortgages work and whether it's possible to get a low-deposit deal in the COVID era.

In this article
Coronavirus (COVID-19) mortgages update What is a 95% mortgage? Video: how 95% mortgages work 95% mortgage calculator: how much could you borrow? 95% mortgage rates and availability
Could you get a 95% mortgage? Can you get a 95% mortgage on a new-build home? Can your family help you get a 95% mortgage? The disadvantages of 95% mortgages Alternatives to 95% mortgages

Coronavirus (COVID-19) mortgages update

The current deadline for mortgage payment holiday applications, which allow homeowners to defer payments for up to six months, is 31 January 2021. You can find out more with the following articles:

For the latest updates and advice, visit the Which? coronavirus information hub.


What is a 95% mortgage?

A 95% mortgage is a loan for 95% of a property’s price, where you put down a 5% deposit to cover the rest.

For example, if you wanted to buy a house worth £200,000 with a 95% mortgage, you would put down £10,000 of your own money and borrow the remaining £190,000.

You might see 95% mortgages described as having a '95% LTV'. This stands for loan-to-value and simply means the percentage of the property's value that's being covered by the mortgage.

Our LTV calculator lets you work out what LTV you'll need to borrow at.

 

Video: how 95% mortgages work

Watch our short video to understand the basics of 95% mortgages.

95% mortgage calculator: how much could you borrow?

You could theoretically borrow up to five times your salary (or combined salary if you’re buying with someone else) with a 95% mortgage.

For example, if you had saved a 5% deposit of £10,000 for a £200,000 home, you'd usually need a salary of at least £38,000 (or a combined salary of the same amount for a couple) to be able to borrow the remaining £190,000.

 

The amount you'll be able to borrow will vary depending on the lender and your personal circumstances. Some lenders place caps at 4.5 or 4.75 times your annual income.

Use our calculator to find out how much you could borrow with a 95% mortgage.

95% mortgage rates and availability

In the wake of the coronavirus pandemic, it's become much harder to get a 95% mortgage.

In March 2020, there were 273 95% deals available to first-time buyers, but by August 2020 that figure had dropped to just 10.

This means that in the current climate you might struggle to get a loan with a deposit of just 5%. It's not impossible, but lenders will be restricting their 95% loans to the very lowest-risk applicants: those with stable, long-term jobs, excellent credit scores.and possibly even a guarantor – someone (usually a parent) who is willing to commit to covering your mortgage if you're unable to.

Will 95% mortgages return to the market?

There's currently no sign of lenders reinstating their 95% deals, but a handful of banks have brought back their 90% mortgages, which require a 10% deposit. 

Generally speaking, rates on 95% mortgages are around 0.7%-1% more expensive than 90% deals, so if you're able to save a bigger deposit you could benefit from much lower monthly repayments.

Should I try to get a low-deposit deal now?

Right now, it's difficult to get a 95% mortgage. 

With this in mind, if you have a small deposit and are thinking of buying your first home, you might be better waiting to see what happens to the mortgage market over the next 6-12 months.

There's also some uncertainty around whether house prices will go up or down. A drop in house prices would make low-deposit deals more risky, as borrowers could potentially be left in negative equity.

Could you get a 95% mortgage?

95% mortgages are theoretically available to both first-time buyers and home movers.

But saving up a 5% deposit is only half the battle – you’ll need to be able to prove that you earn enough to meet the monthly mortgage repayments before anyone will consider giving you a 95% mortgage.

Affordability testing

Your salary is an important starting point, but it isn’t the only factor lenders will take into account. They'll assess the full range of your income, regular outgoings and any debt, among other things, when working out whether you can afford a mortgage.

They'll also 'stress test' your finances. This means checking whether you could still afford the mortgage payments if interest rates were to rise. You can see what this would look like using our mortgage interest calculator.

If you're currently furloughed due to COVID-19, lenders will generally only take your furloughed income into account. Some may be more flexible if you can provide a letter from your employer to say they're paying you 100% of your salary or that you'll be returning to work on a set date.

Speak to a mortgage broker if you want guidance on getting yourself into the best possible position before applying.

Credit score

To increase your chances of qualifying for a 95% mortgage you’ll need a good credit score, with a history of paying bills, loans and credit cards on time. If you’re also paying rent, you can choose to incorporate this into your Experian credit history.

Making sure that you're registered on the electoral roll is a quick and easy way of boosting your credit score. 

Can you get a 95% mortgage on a new-build home?

It has always been difficult to get a 95% mortgage on new-build homes, and you're unlikely to find a suitable deal in the current climate.

If you're interested in buying a new-build property but can't borrow enough, it might be worth looking into a Help to Buy equity loan, where you can boost a 5% deposit with a government loan, meaning you take out a smaller mortgage.

Can your family help you get a 95% mortgage?

If your family are keen to help you get on the ladder, there are several ways they can assist.

A family member could gift or loan you money for a deposit. If the money is a gift, you'll need to provide evidence to the lender that you won't be required to pay it back.

Some lenders place a cap on what percentage of a deposit can be gifted, so consider taking advice from a mortgage broker first.

Alternatively, your family member could act as a guarantor for your mortgage. This can mean using their savings or property as collateral in case you miss a payment. You can read about the different options in our guide to guarantor mortgages.

The disadvantages of 95% mortgages

Interest rates

The bigger the percentage of a property's value that you're borrowing, the higher the interest rate you’ll (usually) be charged.

For this reason, it can sometimes be beneficial to save up a bigger deposit so you can get a cheaper mortgage deal.

Difficulty remortgaging

 

Taking out a 95% mortgage could make it difficult to remortgage to a better rate when your deal ends, as it can take a while to build up enough equity to qualify for better deals.

Negative equity

If the value of your home falls, there’s a risk you could end up in negative equity. This is where you owe more on your mortgage than your property is worth.

The more equity you hold in your property, the smaller the risk of falling into negative equity – so if you've put in a bigger deposit in the first place you're automatically decreasing the likelihood of this happening.

Alternatives to 95% mortgages

A 95% mortgage is just one option if you have a small deposit. Other options include:

 

Shared ownership

You could buy a 25%-75% share of a property under shared ownership and pay rent on the remaining share.

You'd only need a mortgage for your share of the property, so you might be able to borrow at a lower LTV and therefore qualify for better rates.

Do your research before rushing into shared ownership. Properties can be expensive and the combined cost of the mortgage, rent and service charges can quickly add up.

Help to Buy equity loans

If you're interested in buying a new-build, you could look into Help to Buy equity loans. 

Here, you put down a deposit of at least 5% and the government loans you a further portion of the property price (40% in London, 20% in the rest of England and Wales, and 15% in Scotland) meaning you only need to take out a mortgage for the rest of the property's value.

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