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

Base rate rise has little impact on low-deposit mortgages

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

90% and 95% mortgage rates remain very attractive, despite the recent rise in the Bank of England base rate. 

Low-deposit mortgages became cheaper in the second half of 2021, meaning borrowers with a 5% deposit can now secure a deal with a rate well below 3%.

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


Low-deposit mortgage market thrives

Nine in ten 90% and 95% mortgages were withdrawn from the market in the wake of the Covid-19 outbreak in 2019 – but, nearly two years on, the landscape looks much better for first-time buyers with small deposits.

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

There are now 230 fixed-rate 95% deals available, down slightly on December’s figure but still the joint highest number recorded in the last year.

The graph below shows how the number of low-deposit deals has risen in the last 12 months.

Average rates on 95% mortgages hit record lows

The return of low-deposit mortgages has provided first-time buyers with a big boost, and last month average rates on 95% mortgages dropped to the lowest levels since Moneyfacts started recording the data in 2011.

The average two-year fixed-rate deal fell to just 3.09% in December, while five-year fixes dropped to 3.39%.

Eleanor Williams of Moneyfacts said: ‘Following the end of a stamp duty holiday which kept the property market buoyant for much of 2021, it may be that providers are now focusing on enticing first-time buyer business, which has often been considered the lifeblood of the housing market.’

Best rates on 90% and 95% mortgages

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


90% loan-to-value 

The best rates on 90% mortgage rates have remained the same this month, despite the recent increase in the Bank of England’s base rate.

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 0.27% more than the cheapest rate. On a five-year fix, the gap is 0.25%.

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

Lender Initial rate Revert rate Fees
Yorkshire Building Society 1.63% 3.75% £995
HSBC 1.64% 3.54% £999
Santander 1.64% 3.35% £999


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

Lender Initial rate Revert rate Fees
Platform 2.14% 4.49% £1,999
HSBC 2.16% 3.54% £1,499
Clydesdale Bank 2.18% 4.49% £1,999

Rates checked 26 January 2022.


95% loan-to-value

Average rates on 95% mortgages have also seen little movement in recent weeks, meaning buyers with small deposits can still secure a great deal.

First-time buyers can get a fee-free deal with a premium of 0.22% on the cheapest rate on a two-year deal and 0.1% on a five-year deal.

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

Lender Initial rate Revert rate Fees
Platform 2.34% 4.49% £1,499
Yorkshire Building Society 2.36% 3.75% £995
Leek Building Society 2.37% 5.19% £995


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

Lender Initial rate Revert rate Fees
Yorkshire Building Society 2.79% 4.49% £995
Clydesdale Bank 2.83% 4.49% £999
HSBC 2.84% 3.54% £999

Rates checked 26 January 2022.

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. Last summer, 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 a £50,000 salary, you would theoretically be able to borrow up to £275,000.

The online mortgage broker Habito went one further in December, when it announced that borrowers could access seven times their income at up to 90% loan-to-value, albeit with the caveat that they’d need to fix their interest rate for the full term of the mortgage.

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

 

Will the rising base rate make 90% and 95% mortgages more expensive?

Last month, the Bank of England increased the base rate from the historic low of 0.1% to 0.25% in response to rising inflation.

As the base rate dictates the cost of borrowing for banks and building societies, a rise usually results in higher prices for consumers.

But the rise has had little impact on low-deposit mortgages. That’s because banks had already priced in the prospect of a base rate hike and had been increasing rates on their cheaper mortgages for buyers with big deposits.

Cheaper deals have more headroom to rise, and competition in the 90% and 95% market should prevent prices from soaring in the short term.

The Bank of England will make its next base rate announcement on Thursday 3 February.


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 26 January 2022.

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