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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 deals available to first-time buyers and gives advice on buying your first home.

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Nine in ten 90% and 95% mortgages were withdrawn from the market in the wake of the Covid-19 outbreak last spring.

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.

Indeed, new data from Moneyfacts shows average 90% and 95% mortgage rates have fallen for four consecutive months.

The graph below shows how the number of low-deposit deals has risen since the start of the year.

What is the mortgage guarantee scheme?

As you can see above, lenders have been slowly bringing back 90% deals since the beginning of 2021, 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 200 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 well below 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 0.1% this month – with a handful of deals now available with rates below 2%.

Some of these deals come with up-front fees of up to £1,999. Buyers who can’t afford or don’t want to pay 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 0.47%.

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

Lender Initial rate Revert rate Fees
Halifax 1.79% 3.59% £999
NatWest 1.82% 3.59% £995
Santander 1.84% 3.35% £749

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

Lender Initial rate Revert rate Fees
Platform 2.16% 4.34% £1,999
Skipton Building Society 2.45% 4.64% £1,995
HSBC 2.46% 3.54% £1,499

Rates checked 12 October 2021.

95% loan-to-value

The initial rush of the mortgage guarantee scheme might have calmed down, but rates have dropped slightly in the last month.

Buyers can get a fee-free deal with a premium of 0.12% on the cheapest rate on a two-year deal and 0.15% on a five-year deal.

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

Lender Initial rate Revert rate Fees
Skipton Building Society 2.67% 3.64% £495
Halifax 2.68% 3.59% £999
Leeds Building Society 2.68% 4.04% £999

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

Lender Initial rate Revert rate Fees
West Brom Building Society 2.99% 3.99% £995
Yorkshire Building Society 3.00% 4.49% £995
Atom Bank 3.04% 3.50% £900

Rates checked 12 October 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?

Cheaper mortgage rates may be encouraging more people to buy their first home. Data from the estate agency body Propertymark shows 28% of purchases in August were made by first-time buyers, up from just 20% in July.

But with property prices continuing to rise, many prospective buyers are still finding themselves priced out.

A recent 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 12 October 2021.

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