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First-time buyers: how to get the best deal on a 90% or 95% mortgage

Rates on low-deposit deals drop after launch of guarantee scheme

First-time buyers: how to get the best deal on a 90% or 95% mortgage

First-time buyers with small deposits may now find it easier to get a mortgage, with 90% and 95% deals more readily available.

The government’s new mortgage guarantee scheme has resulted in dozens of new low-deposit deals being launched, and rates have begun to fall.

Here, Which? reveals the best rates available to first-time buyers and gives advice on buying your first home in 2021.

Low-deposit mortgage deals return

Nine in ten 90% and 95% mortgages were withdrawn from the market in the wake of the Covid-19 outbreak last spring.

A year on, things are looking much better for first-time buyers with small deposits.

The vast majority of major lenders have brought back their 90% mortgages, and the 95% mortgage guarantee scheme launched in April has resulted in a flurry of deals coming back to the market.

The graph below shows how the number of low-deposit deals has risen over the last six months.

What is the mortgage guarantee scheme?

As you can see above, lenders have been slowly bringing back 90% deals since the end of 2020, but until recently there was no sign of 95% mortgages returning – meaning first-time buyers would need a deposit of at least 10% to buy a home.

With this in mind, the government launched a new mortgage guarantee scheme in April. The scheme involves the government encouraging lenders to offer 95% mortgages by taking on some of the financial risks involved, for example if a buyer defaults on their loan.

The guarantee has been successful so far, with 132 fixed-rate 95% deals now available, compared to just five at the start of March.

As a buyer, it makes no difference whether the 95% deal you choose is part of the scheme or sits outside of it, so when comparing deals, make sure you focus on all of the available options – whether they’re part of the scheme or not.

Best rates on 90% and 95% mortgages

The mortgage guarantee scheme has certainly made a difference to the number of options available to first-time buyers.

Rates on 95% mortgages are dropping as lenders compete for business, but remain significantly higher than those on 90% deals.

The tables below show the cheapest initial rates currently available for first-time buyers with 10% and 5% deposits respectively.

90% loan-to-value

90% mortgage rates remain more than 1% higher than before the pandemic. With little to choose between rates, it’s important to focus on other aspects of deals, such as up-front fees. As you can see below, some of the cheapest fixes have very high fees of almost £2,000.

Buyers who can’t afford or don’t want to pay these fees can instead take a slightly more expensive rate. On a two-year fix, it’s possible to get a fee-free deal for 0.14% more than the cheapest rate. On a five-year fix, the gap is 0.18%.

Lowest rates on 90% two-year fixed-rate deals

Lender Initial rate Revert rate Fees
HSBC 2.88% 3.59% £995
Halifax 2.89% 3.54% £999
Natwest 2.93% 3.59% £995

Lowest rates on 90% five-year fixed-rate deals

Lender Initial rate Revert rate Fees
HSBC 3.26% 3.54% £1,499
Clydesdale Bank 3.28% 4.55% £1,999
Cumberland 3.29% 4.09% £1,999

Rates checked 2 June 2021.

95% loan-to-value

Rates on 95% mortgages are falling, and new deals from Hinckley & Rugby Building Society now top the charts for both two and five-year fixes.

On a two-year fix, buyers can get a fee-free deal with a premium of 0.26% on the cheapest rate. On a five-year fix, the additional cost is 0.2%.

Lowest rates on 95% two-year fixed-rate deals

Lender Initial rate Revert rate Fees
Hinckley & Rugby BS 3.39% 4.24% £999
Nationwide 3.49% 3.59% £1,499
Atom Bank 3.58% 3.5% £900

Lowest rates on 95% five-year fixed-rate deals

Lender Initial rate Revert rate Fees
Hinckley & Rugby BS 3.69% 5.89% £999
Coventry BS 3.79% 4.49% £999
Atom Bank 3.79% 3.5% £900

Rates checked 2 June 2021.

The Which? Money PodcastHow much can I borrow with a low-deposit mortgage?

When taking out a 90% or 95% mortgage, you can usually borrow up to four-and-a-half times your annual income.

As an example, if you and your partner collectively earn £50,000, you should be able to borrow around £225,000, as long as you meet the other criteria banks have in place.

There are exceptions. Nationwide recently announced it would allow first-time buyers to borrow five-and-a-half times their salary on mortgages up to 90% loan-to-value. This means that with that £50,000 salary, you would theoretically be able to borrow up to £275,000.

If you’re unsure about how much you might be able to borrow, or want to know which lenders might offer you the biggest mortgage, it’s worth taking advice from a mortgage broker.

computer screen showing mortgage application form


How to get accepted for a mortgage

It’s important to do some preparation before applying for a mortgage to give yourself the best chance of being accepted.

Research by Aldermore Bank found having a poor credit history, too small a deposit or inconsistent income from self-employment were the three main reasons prospective first-time byers were rejected for a mortgage.

It can take some time and forward planning to get your finances in order ahead of a mortgage application, especially if there are any errors on your credit report.

Check out our guide on improving your mortgage chances for some simple steps you can take to boost the likelihood of getting accepted first time.

How to buy your first home in 2021

It’s a tough time to get on the property ladder, with the pandemic bringing uncertainty and the stamp duty holiday resulting in rising house prices.

Which? is here to help with all the advice you need, whether you’re putting money aside for a deposit or are ready to apply for a mortgage.

As a starting point, check out our step-by-step guide to buying a house, which takes you on the journey from saving a deposit to exchanging contracts.

If you’re struggling to get to grips with mortgages, we’ve got lots of advice on the different types of deal and how to apply.

Finally, why not check out our mortgage lender reviews, which combine customer ratings with our expert analysis to identify the UK’s best mortgage lenders?

This story was originally published in January 2021. It is regularly updated with the latest 90% and 95% mortgage deals and rates. The last update was on 2 June 2021.

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