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

Cheapest rates on low-deposit deals level off amid rumours of base rate rise

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

Rates on 90% and 95% mortgages are levelling off, as speculation continues about a possible rise in the Bank of England base rate. 

Low-deposit mortgages have become significantly cheaper over the last six months, providing a boost for cash-strapped first-time buyers – but could that be set to change?

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Nine in ten 90% and 95% mortgages were withdrawn from the market in the wake of the Covid-19 outbreak last spring.

More than 18 months on, things look 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 rates falling steadily.

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 250 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 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 rates have largely remained the same this month, though the gap is widening between the table-topping five-year fix and the rest of the competition.

Some of the ‘cheapest’ deals below 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 0.3% more than the cheapest rate. On a five-year fix, the gap is 0.37%.

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

Lender Initial rate Revert rate Fees
Halifax 1.64% 3.59% £999
Atom Bank 1.69% 3.50% £1,500
HSBC 1.69% 3.54% £999

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

Lender Initial rate Revert rate Fees
Platform 2.16% 4.34% £1,999
Atom Bank 2.34% 3.50% £1,500
HSBC 2.36% 3.54% £1,499

Rates checked 1 December 2021.

95% loan-to-value

95% mortgage rates have seen little movement in recent weeks, meaning borrowers can still get a two-year fix with a rate below 2.5%.

First-time buyers can get a fee-free deal with a premium of 0.2% on the cheapest rate on a two-year deal and 0.11% on a five-year deal.

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

Lender Initial rate Revert rate Fees
Leeds Building Society 2.44% 4.04% £999
Newcastle Building Society 2.45% 3.96% £999
Yorkshire Building Society 2.45% 3.75% £995

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

Lender Initial rate Revert rate Fees
Yorkshire Building Society 2.84% 4.49% £999
Hinckley and Rugby Building Society 2.85% 5.89% £199
Leeds Building Society 2.88% 5.29% £999

Rates checked 1 December 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


Are mortgage rates set to rise?

Speculation is rife that mortgage rates could be set to rise – and we’re already seeing slight increases in the cheapest rates for buyers with big deposits.

This is because it now seems likely that the Bank of England base rate will rise from the current low of 0.1% at some point in the coming months.

The base rate dictates how interest much the Bank charges commercial lenders (those you get your mortgage from). This means that a rise in rates, or even speculation one is coming, can result in lenders increasing the costs of their deals.

If rates rise, we could see banks look to instead tempt borrowers with fee-free deals and cashback incentives. Earlier this week, Yorkshire Building Society launched a new range of 95% deals with no up-front fee and £1,000 cashback.

The Bank of England voted to maintain the base rate at 0.1% on 4 November. The next announcement is due on 16 December.

Which? Money Podcast: what’s happening to house prices and mortgage rates?

In a recent episode of the Which? Money Podcast, we discussed what might be next for the property market now that the stamp duty holiday has come to an end.

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 December 2021.

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