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

Rates on low-deposit deals continue to drop in boost for first-time buyers

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 mortgage guarantee scheme has resulted in dozens of new low-deposit deals being launched, and rates are falling.

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Nine in ten 90% and 95% mortgages were withdrawn from the market in the wake of the Covid-19 outbreak last spring.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 since the end of 2020.

What is the mortgage guarantee scheme?

As you can see above, lenders have been slowly bringing back 90% deals since the end of last year, 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 170 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% mortgages remain more expensive than before the pandemic, but the cheapest two-year fixes have dropped in cost by 0.3% this month.

Buyers who can’t afford or don’t want to pay up-front fees can instead take a slightly more expensive rate. On a two-year fix, it’s possible to get a fee-free deal for 0.29% more than the cheapest rate. On a five-year fix, the gap is 0.13%.

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

Lender Initial rate Revert rate Fees
Hinckley & Rugby Building Society 2.30% 4.24% £199
Barclays 2.35% 3.59% £999
Leeds Building Society 2.47% 4.04% £999


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

Lender Initial rate Revert rate Fees
Barclays 2.95% 3.59% £999
HSBC 2.96% 3.54% £1,499
Hinckley & Rugby Building Society 2.99% 5.89% £199

Rates checked 20 July 2021.


95% loan-to-value

Rates on 95% mortgages are also dropping, albeit more slowly than 90% deals, as the initial rush caused by the mortgage guarantee scheme cools down.

On a two-year fix, buyers can get a fee-free deal with a premium of 0.15% on the cheapest rate. On a five-year fix, the additional cost is just 0.01%.

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

Lender Initial rate Revert rate Fees
Coventry Building Society 3.25% 4.49% £999
Leeds Building Society 3.30% 4.04% £499
Platform 3.35% 4.34% £1,499


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

Lender Initial rate Revert rate Fees
Coventry Building Society 3.59% 4.49% £999
Barclays 3.60% 3.59% None
Leeds Building Society 3.60% 5.29% £499

Rates checked 20 July 2021.

How 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 hard is it to buy your first home?

Even with improving mortgage rates, it’s a tough time to buy your first home, with property prices continuing to rise.

A report by the Resolution Foundation shows that the deposit needed to get on to the property ladder has tripled in real terms over the last 20 years, rising from £11,000 to £33,000.

Looking further back, the cost of buying a first-time buyer property has increased by more than two-thirds over the last 50 years.

Lindsay Judge of the Resolution Foundation says: ‘The good news for first-time buyers today is that they are set to accrue more property wealth from their first home than any previous generation.

‘But that makes it all the more frustrating that for many young families without access to the Bank of Mum and Dad, homeownership is simply out of reach.’

Which? Money Podcast: how to buy your first home in 2021

In last week’s Which? Money Podcast, we delved into the issues facing first-time buyers in 2021, including an exclusive interview with the housing minister Chris Pincher. You can listen to the full episode below.


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 20 July 2021.

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