The 95% mortgage has recently made a comeback, we have seen its reintroduction from an increasing number of lenders on the market. Traditionally, lenders have not offered this product as they are considered riskier due to the smaller deposit and the renewed appetite to lend paints a picture of post-pandemic optimism that will be welcome to many. Read more below about 95% mortgages, and an overview from Chris Tudor, our Senior Mortgage Advisor.
What is a 95% mortgage?
If you’re unfamiliar with the term, a 95% mortgage is a mortgage given to purchase a property with a small deposit of at least 5%, but less than 10% of the purchase price. A deposit is ultimately how much equity you have in the property after purchase and it is widely thought that the higher that figure in relation to the overall value of the property, the more likely you can repay the mortgage in full if the property were to lose value.
These mortgages are sometimes referred to as 95% LTV mortgages. LTV, or loan-to-value, is the percentage of the property’s value that is being covered by the mortgage. An example could be, if you were looking to purchase a house valued at £250,000 and had a deposit of £50,000, your mortgage would be for £200,000 and the LTV would be 80%.
Why are 95% mortgages available?
The 95% mortgage revival is, in part, due to the launch of a new Government-backed mortgage guarantee scheme, which will enable homebuyers to obtain mortgages of up to £600,000, with a 5% deposit. The scheme is due to start this month and will run until December 2022; designed to encourage more lenders to offer 95% mortgages, with the Government compensating them for a portion of any losses incurred, should the property be repossessed. Under the scheme, the mortgage must be for residential property only, not a buy-to-let, or second home. It must be a repayment mortgage, rather than interest-only.
Are 95% mortgages a good option?
A 95% mortgage is perfect for those who may be struggling to save the deposit required to purchase a property, particularly first-time buyers. However, it is worth noting that 95% mortgages are available for anyone and lenders will use the standard criteria to assess viability, such as a credit score and a loan-to-income check. The disadvantage of this type of mortgage is that fewer lenders tend to offer them, so there is less choice on the market. Equally, a 95% mortgage does tend to have larger interest rates, so the overall cost of the mortgage is greater over its term.
From our expert
Chris Tudor, our Senior Mortgage and Protection specialist says, “we are pleased to see a revival of the 95% mortgage as a means for first time buyers to get onto the property ladder. After a period of great uncertainty for many, this product will open up the property market to those who would’ve otherwise struggled to save the required deposit”.
Is a 95% mortgage right for you?
Chris and the team are here to help and advise, so if you think this product could be for you or you would like to discuss anything else mortgage related, please do contact us to book an appointment.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE