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Updated: 13 May 2022

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

Rates on low-deposit mortgages creep up after fourth base rate hike 

Rates on 90% and 95% mortgages are rising steadily, after a fourth increase in the Bank of England's base rate.

Low-deposit mortgages had been relatively unaffected by previous base rate hikes, but the cheapest deals are now beginning to creep up in cost.

Here, we reveal the best mortgage rates currently available to first-time buyers, and explain whether borrowers should be concerned about rising prices.

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Low-deposit mortgage market thrives

Nine in ten 90% and 95% mortgages were withdrawn from the market after the Covid-19 outbreak in 2020, but the landscape now looks much better for first-time buyers with small deposits.

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

The number of low-deposit mortgages has dropped off slightly in the last couple of months, with lenders chopping and changing their deals in light of the recent base rate rises.

The graph below shows how the number of 90% and 95% mortgages has changed since the start of 2021.

Best rates on 90% and 95% mortgages

Since December, the Bank of England's base rate has increased four times, rising from 0.1% to 1%.

The first two rises have had relatively little impact on low deposit mortgages, but the third and fourth both resulted in rates on 90% mortgages increasing.

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 cheapest two-year and five-year rates have risen by around 0.15% this month.

Many of the 'cheapest' deals below come with up-front fees of up to £999. Buyers who can't afford or don't want to pay fees can instead take a slightly more expensive rate. In some instances, doing this can work out cheaper over the fixed term.

It's possible to get a fee-free deal for 0.25% more than the cheapest rate on a two-year fix, or 0.20% on a five-year fix.

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

LenderInitial rateRevert rateFees
Yorkshire Building Society2.45%3.75%£995
Clydesdale Bank2.48%4.99%£999

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

LenderInitial rateRevert rateFees
First Direct2.64%3.79%£490
Clydesdale Bank2.65%4.99%£999

Source: Moneyfacts, rates checked 10 May 2022.

95% loan-to-value

The cheapest rates on 95% two-year fixes have risen by 0.3% this month, while five-year fixes have risen by just 0.1%.

First-time buyers can get a fee-free deal with a premium of just 0.03% on a two-year fix. The cheapest five-year fix is fee-free.

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

LenderInitial rateRevert rateFees
Newcastle Building Society2.74%3.75%£995

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

LenderInitial rateRevert rateFees
First Direct2.94%3.79%None
Clydesdale Bank2.95%4.99%£999
Nottingham Building Society2.98%4.24%None

Source: Moneyfacts, rates checked 10 May 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 £60,000, you should be able to borrow around £270,000, as long as you meet the other criteria banks have in place.

There are exceptions. In February, Nationwide announced it would allow first-time buyers to borrow five-and-a-half times their salary on 95% mortgages. This means that with a household income of £60,000, you would theoretically be able to borrow up to £300,000.

The online mortgage broker Habito offers the biggest income multiples. In December, 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. 

The threat posed by inflation and the rising cost of living means some banks have recently tightened their lending restrictions, requiring buyers to have higher salaries to be eligible for bigger mortgages.

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

Will the rising base rate make mortgages more expensive?

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

The recent increases have only begun to have an effect on low-deposit mortgage rates in the last couple of months. That's because banks had already priced in the prospect of base rate hikes, and had instead been increasing rates on their cheaper mortgages for buyers with big deposits.

So far, competition between lenders has kept low-deposit mortgage rates relatively low, but any further increases in the base rate will almost certainly have an impact on the cheapest deals.

The Bank of England will make its next base rate announcement in June.

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 13 May 2022.