We use cookies to allow us and selected partners to improve your experience and our advertising. By continuing to browse you consent to our use of cookies. You can understand more and change your cookies preferences here.

Coronavirus Read our latest advice

95% mortgage deals hit nine-year high – should you buy with a 5% deposit?

Lenders re-entering market for buyers with low deposits

95% mortgage deals hit nine-year high – should you buy with a 5% deposit?

The number of 95% loan-to-value mortgage deals on the market has passed the 300 mark for the first time in nearly a decade, as lenders compete for business from buyers with small deposits. 

Here, we take a look at whether now is a good time to take out a 95% mortgage, taking into account the new products on the market and the likelihood of an upcoming hike in the Bank of England base rate.

 


95% mortgages reach post-crash high

While many buyers have benefited from ultra-low rates over recent years, buyers with a 5% deposit have not always enjoyed the benefits.

Now, there are signs that increased competition is leading to better deals.

In the last month, several lenders have re-entered the 95% mortgage market as they look to take advantage of increased buyer optimism since stamp duty was abolished on properties priced up to £300,000 for first-time buyers.

The chart below shows how the number of 95% loan-to-value ratio products on the market has been slowly climbing to reach its highest level since April 2008.

Lenders returning with first-time buyer deals

With a swathe of customers coming to the end of their fixed-term mortgages and shopping around for better offers, lenders have begun to prioritise first-time buyers.

In the past month, Marsden and Sainsbury’s Bank have relaunched their 95% mortgage range, while Barclays has expanded its offering for aspiring homeowners.

The table below shows the current best initial rates available for 95% mortgages.

Mortgage duration Lender  Initial rate Revert rate APRC Fees
Two-year Marsden 3.09% 5.95% 5.7% £299 booking, 0.5% booking
Five-year Clydesdale Bank 3.89% 4.95% 4.7% Fee free

Data from Moneyfacts on 14 March. This table doesn’t include specialist mortgages and only includes nationally available deals

Some lenders are throwing in bonuses to sweeten the deal, with Sainsbury’s Bank offering £250 and a free valuation on some mortgages, and Barclays pledging up to £500 in cashback.

95% mortgage: is now a good time?

While the average two-year fixed rate has fallen for the fifth consecutive month, it remains above the all-time low seen in January 2017.

While more products are coming on to the market, wider economic factors mean that rates might not drop much further, even as more lenders join the party.

The Bank of England has hinted it will increase the base rate in the upcoming months, and ‘swap’ rates (the cost of borrowing between lenders) are already on the up – meaning we are unlikely to see last year’s record-low mortgage rates repeated in 2018.

Should I save more to get a better rate?

When you’re saving for your first home, it can be difficult enough to put away a 5% deposit, let alone a 10% one.

But if you’re able to save a little extra or wait longer to get on to the property ladder, you can take out significantly better mortgage deals at a 90% LTV – as shown in the table below.

Mortgage duration Lender  Initial rate Revert rate APRC Fees
Two-year Yorkshire 1.82% 4.99%  4.5% £1,495 completion
Five-year Atom Bank 2.29% 3.75%  3.2% £900 arrangement

Data from Moneyfacts on 14 March. This table doesn’t include specialist mortgages and only includes nationally available deals

As with any financial decision, the best deal depends on your personal circumstances and we recommend taking advice from an independent broker before rushing into applying for a mortgage.

Back to top
Back to top