What is a 95 percent mortgage? If you’re looking to buy a house, then you might want to find this out. What does it mean and, if any, risks do they present? Let’s take a look!
What does ‘Up to 95% Mortgage’ Mean?
A ‘95 percent mortgage’ is when you buy a home with a 5% deposit and a mortgage worth 95% of the property’s value. The 95% relates to the loan-to-value (LTV) ratio of your mortgage compared to the property price.
To get the best idea of your mortgage options and what mortgage is right for you it’s always worth speaking to a mortgage adviser. Our preferred mortgage adviser offers a free mortgage in principle that you could get instantly.
They also offer fee-free advice for most customers and have access to over 12,000 deals from 90 lenders.
Always remember: Your home may be repossessed if you do not keep up repayments on your mortgage.
What does 95% LTV mean?
Your LTV is very important when you buy a property as it impacts the interest rate you pay on your mortgage. In general, the lower your LTV, the lower the rate of interest you’ll pay.
You can work out your LTV by doing a simple calculation: divide the mortgage amount by the value of the property and multiply the figure by 100 to get a percentage.
For example, if you save a £40,000 deposit to buy a £200,000 property, £40,000 is 20% of £200,000, so your LTV would be 80%. If you had a £10,000 deposit to buy the same property, £10,000 is 5% of £200,000, so your LTV would be 95%.
Every mortgage product on the market comes with a ‘maximum LTV’. This figure is normally between 60% and 95%. Via our preferred mortgage adviser, you can compare mortgages straight away.
Always remember: Your home may be repossessed if you do not keep up repayments on your mortgage.
In the past it was possible to get a 100% mortgage, or even 125%. But these mortgages are not sold anymore, meaning 95% is the highest LTV you are likely to see advertised.
Is a 95 percent mortgage risky?
A 95 percent mortgage can be considered risky for both lenders and borrowers.
From the lender’s point of view, a borrower at this level LTV can be considered more of a risk due to the low-level deposit they have available. Because the buyer hasn’t been able to save a large enough deposit for their home and therefore needs to borrow more, they present a higher risk to mortgage repayments.
For this reason, lending criteria, underwriting and affordability assessments can be more in depth for mortgages at 95% than, say, 60%.
There is also a higher risk of negative equity with 95% mortgages. If house prices were to fall, the mortgage could soon be higher than the property’s value. This makes 95% mortgages risky for borrowers. Being in negative equity can make it difficult to remortgage or sell your property.
To get the best idea of your mortgage options and what mortgage is right for you. It’s always worth speaking to a mortgage adviser. Our preferred mortgage adviser offers a free mortgage in principle that you could get instantly.
Your home may be repossessed if you do not keep up repayments on your mortgage.
What is the Mortgage Guarantee Scheme?
The Covid pandemic saw most mortgage lenders pull back from a 95 percent mortgage – they were seen as just too risky in uncertain times.
To encourage more lenders back to this part of the mortgage market, the government introduced the Mortgage Guarantee Scheme in April 2021.
The scheme involves the government ‘guaranteeing’ part of the amount banks lend to mortgage borrowers. This makes lending at this LTV safer for lenders.
Six banks are signed up to the scheme:
- Barclays
- HSBC
- Lloyds
- Natwest
- Santander
- Virgin Money
The scheme means these banks all offer a 95 percent mortgage backed by the government, with borrowers just needing to save up a 5% deposit.
From a borrower’s point of view, the mortgage application process will be pretty much the same as usual. But you will still need to pass credit checks and an affordability assessment to be offered a mortgage.
The Mortgage Guarantee Scheme is available to both first-time buyers. And home movers buying a property to live in (not to let out). It also applies to both new build and existing properties with a sold price up to £600,000.
Is it hard to get a 95 percentage mortgage?
It’s important to only take out a mortgage you can afford to repay. You should also take time to research the right mortgage for your needs.
You’ll need a good credit report to get a 95 percent mortgage and will be limited to certain lenders.
To get the best idea of your mortgage options and what mortgage is right for speak to a mortgage adviser. We can help with that.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Is a 95 percentage mortgage suitable for me?
The increasing cost of living, high rents and low interest on savings accounts has made saving for a property deposit more difficult than ever.
If you want to buy a property in an area where property prices are high, saving a 5% deposit can be difficult. In a recent survey it came to light, that in London the average house costs £688,800 – so a 5% deposit would be £34,440!
Saving a 10% deposit for a home in London would mean saving £68,880. This is a massive amount to try and save and would take many years. Saving just 5% and opting for a 95 percent mortgage would mean getting on the property ladder sooner than if you tried to save a bigger deposit.
Last Updated: December 15th, 2022
