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

Borrowers handed a boost as low-deposit mortgage rates drop below 2%

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

Mortgage rates for first-time buyers are tumbling, as lenders battle for business from borrowers with small deposits.

It’s now possible to get a 90% mortgage with a rate of less than 2%, or a 95% mortgage at below 3% – rates that seemed highly unlikely just a few months ago.

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Nine in ten 90% and 95% mortgages were withdrawn from the market in the wake of the Covid-19 outbreak last spring.

Nearly 18 months on, things are looking much better for first-time buyers with small deposits, with the vast majority of lenders having brought back their low-deposit deals.

The 95% mortgage guarantee scheme, which was launched in April, resulted in a flurry of mortgages coming on to the market, and since then rates have been falling steadily.

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 April there was little 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. 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 189 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 have dropped markedly as lenders compete for business. In April, new deals were being launched with rates of just under 4%, but it’s now possible to get a rate of less than 3%.

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

90% loan-to-value

The cheapest two-year fixes have dropped in cost by around 0.25% this month – with one table-topping deal now available for less than 2%.

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 0.3% more than the cheapest rate. On a five-year fix, the gap is 0.2%.

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

Lender Initial rate Revert rate Fees
HSBC 1.99% 3.54% £999
Halifax 2.02% 3.59% £995
Natwest 2.12% 3.59% £999

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

Lender Initial rate Revert rate Fees
Atom Bank 2.64% 3.5% £1,500
HSBC 2.66% 3.54% £1,495
Halifax 2.70% 3.59% £995

Rates checked 31 August 2021.

95% loan-to-value

The initial rush of the mortgage guarantee scheme might have calmed down, but rates are continuing to fall for borrowers with a 5% deposit.

On a two-year fix, buyers can get a fee-free deal with a premium of 0.2% on the cheapest rate. On a five-year fix, the additional cost is just 0.15%.

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

Lender Initial rate Revert rate Fees
Coventry Building Society 2.95% 4.49% £999
HSBC 2.99% 3.54% £999
Leeds Building Society 2.99% 4.04% £999

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

Lender Initial rate Revert rate Fees
HSBC 3.29% 3.54% £999
Leeds Building Society 3.32% 5.29% £999
Nationwide 3.34% 3.59% £1,499

Rates checked 31 August 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. Earlier this year, Nationwide 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 a recent episode of the 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 31 August 2021.

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