June 25, 2019

95% Mortgages: What You Need to Know

More and more lenders are adding 95% mortgages to their range of available loan products. In fact, 95% mortgages are the only product which has increased in availability so far in 2019.

As a result, those looking at loan-to-value ratios of 90% and below now having fewer deals to choose from than they did last year.

But what does borrowing 95% of your home's value mean in the long term? And is it worth it to get on the property ladder faster?

What are 95% Mortgages?

A 95% mortgage allows you to borrow up to 95% of the purchase price of a property you want to buy and put down just 5% as a deposit.

Only needing a 5% deposit means you don't need as much cash to hand and can shave years off the time you need to spend saving up.

Typically, the best mortgage deals are reserved for borrowers with big deposits of 40% or more, but there are plenty of competitive rates available to buyers with just 5% to put down.

As more lenders look to enter the market, competition should mean that rates for 95% mortgages stay low, at least for now.

Should You Try to Save a Bigger Deposit?

Having a bigger deposit will allow you a wider choice of mortgages, usually at lower rates. So if you're not in a rush, saving for a little while longer will usually mean you're better off in the long run.

However, if you're renting while saving, there's a good chance you feel like you're wasting money - especially with interest rates being relatively low. It's also worth noting that if property prices were to rise, you may end up having to save for even longer.

It's worth considering all your options and weighing up the pros and cons of each strategy, before deciding on your next move.

Can you get a 95% mortgage?

Lenders will take your income, outgoings and credit score into account when deciding how much they’re prepared to lend you. These factors will also influence whether they're prepared to offer you a 95% mortgage or not.

An independent mortgage advisor can tell you how likely you are to be accepted before you apply. This will save your application being rejected, which can hinder future attempts to secure a mortgage loan.

Choosing the Right Type of Mortgage

When choosing a 95% mortgage, you’ll have fixed-rate and variable-rate deals to choose from:

Fixed-Rate Mortgages

A fixed-rate mortgage usually has an introductory term of between two and five years, during which time your interest rate (and therefore your repayments) will stay the same. This is a popular option as it offers peace of mind, in that you don't need to worry about rates going up.

At the end of your introductory period, you will be switched onto your lender's standard variable rate (SVR), which is almost always higher. This is often when people look to remortgage.

Variable-Rate Mortgages

There are two main types of variable-rate mortgage - tracker and discount mortgages. Tracker mortgages follow the Bank of England's base rate and discount mortgages offer a discount on the lender's standard variable rate. When it comes to discount mortgages, the rate you will be offered will depend upon your circumstances and the lender's individual criteria - this will vary from lender to lender.

5% Deposit + Help to Buy = ????

The government has several schemes in place for potential first-time buyers, all of which can be a huge help if you're struggling to save a big deposit.

From the Help to Buy ISA to the shared ownership scheme, you'll find all the information you need here.

Comparing 95% Mortgages

There are a lot of 95% mortgage products on the market and more being introduced every month. This can mean it gets a bit confusing when it comes to deciding which one is best for you.

If you're struggling, an independent mortgage advisor can offer you expert advice on which products offer the best value and which you're most likely to be accepted for.

Even better, if you get in touch with Key Mortgage Advice, we'll guide you through the process for free!





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The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.