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If you are looking to get onto the property ladder and only have a small deposit, then a 95% mortgage could be your lifeline. It means that you will need to have a deposit of at least 5%. There are risks associated with a higher loan to value (LTV) mortgage and your Mortgage Adviser will explain these to you.
Mortgage terminology can be confusing, especially when talking about the loan to value. If you take a 95% mortgage you will need a 5% deposit (to get to 100%). This is the ratio of the mortgage size you’ve taken compared to the value of your property expressed as a percentage.
If you purchased a house for £150,000 with an LTV of 95% you would need a deposit of £7,500. There are a lot of lenders offering 95% mortgages but they won't necessarily offer them to everyone. If you have complex income or adverse credit you may only be able to get a 90% LTV mortgage, ie you’ll need a deposit of 10%
There are two options for 95% LTV’s available today:
- The Government Backed Scheme
Brought to the market in April 2021 to kickstart the mortgage market after a crazy and covid stricken 2020.
- Standard 95% LTV mortgage
Which are not part of the government-backed scheme
As a purchaser or a home mover, whether you go for the Government Backed Option or if you opt for a Standard 95% mortgage, there will be very little difference to you. This is because the Government Backed options were designed to protect the lender, not the customer.
We are a whole of market brokers and will ALWAYS look to get you the cheapest option available based on your individual needs and circumstances.
Can I get a 5% Deposit Mortgage?
Yes, but the criteria you need to meet is stricter than lower LTV products due to the higher risk to the lender. If you have a history of bad credit or blips in your credit file, it will be more difficult to secure a 5% deposit deal.
The mortgage will work in the same way as any normal mortgage. Acceptance is not guaranteed and is subject to full underwriting, affordability, credit status and the property type. You can improve your chances of success by reading our get mortgage ready guide.
There are many ways to get a 95% mortgage in the UK to help those with a 5% deposit purchase their first property, options like:
- The government-backed 95% mortgage guarantee scheme
- Using the Help to Buy Scheme
- Using the Shared Ownership Scheme
- A family assist mortgage
- A standard 95% mortgage
Our expert Mortgage Brokers will take the time to explain the above to you and to help you decide upon the best option for your unique needs. The mortgage schemes can be confusing and don’t work for everyone, this is why using a Mortgage Broker is so important.
Who can apply for a 95% Mortgage or a 5% Deposit Mortgage?
- First Time Buyers
- Home movers
- Previous homeowners
As long as the property you are purchasing will be your home (your main residence), you can be considered for a 5% Deposit Mortgage. You can not purchase a buy to let or commercial property with a 5% deposit mortgage. The minimum deposit for a buy to let purchase is 20%, so 80% LTV. 95% mortgages are only available to you if you are purchasing a residential property as your main residence.
Are there any restrictions that I need to be aware of when applying for a 95% mortgage with a 5% deposit?
In short, yes. All lenders have their quirks and things that they will/won’t accept.
The general points to note are:
- The property value must be less than £600,000 (£500,000 for some lenders)
- The mortgage must be on a capital repayment basis. Interest Only is not permitted
- You must have a deposit of at least 5% of the property purchase price
- You need to pass the chosen lenders underwriting, credit and affordability checks
- You must be purchasing a residential property to use as your main residence
- You need to be buying your first home or moving home, you cannot be purchasing a 2nd home
How do I apply for a 5% deposit mortgage?
The best way to ensure mortgage success is to use a Mortgage Broker. There are so many variables when applying for a mortgage that can help or hinder you. Applying to too many lenders in a short period can damage your chances of success and your credit rating. This is why we take the time to fully understand your mortgage requirements and review your documents before we recommend a mortgage to you.
We would recommend the following to make sure you are in the best possible position for us to help you:
- Have your documentation ready
We use cutting edge technology to collect data from you but sometimes we need additional documents such as:
- Tax Returns
- Savings account
- Proof of deposit
- Bank Statements
- Copy of your credit report
You can read why we need your credit report here
- Use Hello Mortgage
We offer an award-winning service built on exceptional customer care. It's not all about the mortgage, it's about having your Mortgage Broker guide you through the home buying journey from initial application to receiving your keys to your dream home.
- Be Realistic!
You aren't going to get a high-value home on a low income with a low deposit. It is never fun breaking bad news to a client but it does happen. You need to think realistically as a lender considers your incomings and outgoings when assessing your application.
How long will these mortgages be available?
The Government-backed 95% mortgage scheme came into force on the 1st of April 2021 and will run until December 2022.
The standard 95% Products *should* be here for good…. Almost all high street lenders are offering a 95% LTV product at the moment, whether they are a standard product or a government-backed option.
What is the help to buy equity loan scheme?
This scheme gives the potential to purchase your first home before 2023 by accessing a government loan. You would need to have a 5% cash deposit, the government will loan you up to 20% of the property value and you would take a 75% mortgage.
The government loan is interest-free for the first 5 years, after this time you will make interest payments to the government as well as paying your mortgage. There are other terms and special conditions regrind the equity loan scheme which are covered in our knowledge guide.
How does shared ownership work?
This type of scheme works by allowing you to buy a share in a property and rent the remaining share from a housing association.
You can increase your share over time by remortgaging and purchasing more of share, this is called stair casing. However, this is subject to full underwriting and there is no automatic entitlement to a higher mortgage.
To be eligible for the scheme you need:
- Your household must be earning £80,000 (£90K in London) or less
- Must be either a first-time buyer, a former homeowner who can’t afford to buy now, or an existing shared owner who’s buying another property to move into
- Have at least 5% deposit (but possible to put down more)
- Limited to primary residences only
- Limited to new-build homes and existing properties through resale programmes from local housing associations
How does a family assist mortgage work?
You may have heard this type of mortgage called a guarantor or springboard mortgage, they are all technically the same.
This type of mortgage allows you to purchase a home with a 5% deposit, but also if you have ZERO deposit.
The lender will take a charge over a family members (typically your parents) home as security.
This type of arrangement doesn’t work for everyone, and it is vital that you take proper advice as defaulting on the loan can have serious repercussions for your family member.
Can I get an interest-only 5% deposit mortgage?
No, at the moment you need an 85% mortgage, so a 15% deposit
Can I buy a new build with a 5% deposit mortgage?
Yes, there are a small number of lenders who offer a 95% mortgage for new build properties. However, these can be tricky to get as the criteria is often restrictive.
What are the risks?
With any mortgage, we would always recommend that you put down as much deposit as you can. This is to ensure that you get the best possible rate available and to minimise your risk of negative equity should house prices fall.
By opting for a 5% Deposit product, the interest rate you pay will be higher than it would typically be if you could put down 10% plus.
There is also a much higher risk of falling into negative equity (where your property value is lower than the outstanding mortgage balance).
An important point to consider is “Am I eligible for a mortgage?”. This is why using a Mortgage Broker is so important, we know the market and after assessing your financial position will be able to make a recommendation to you.
Why should you use Hello Mortgage as your mortgage broker?
If you are looking to secure the best mortgage deal, Hello Mortgage is the go-to broker for all your needs. With their wealth of experience and knowledge, they cover the entire market, ensuring they find the most suitable mortgage product for you. As a client, you can breathe easy knowing that they are directly authorised by the Financial Conduct Authority (FCA). Furthermore, Hello Mortgage is dedicated to offering you top-notch service by providing free initial advice, granting you access to intermediary-only mortgage deals, as well as customising weekend and out-of-hours appointments to fit your schedule.
Their certified advisers, with a minimum qualification of CeMAP III and CeRER, make sure that you fully understand the process and receive the best possible guidance. And for those in need of a conveyancing firm, Hello Mortgage partners with an exclusive discounted firm, saving you even more money and stress. Make the right choice by choosing Hello Mortgage as your broker, and leave your mortgage concerns to the experts.