95% Mortgage Deals – July 2022

Buying a home with just a 5% deposit is possible thanks to the availability of 95% mortgages – but you’ll need to do some homework before applying.

Here, we explain all you need to know about 95% mortgage deals including the government’s Mortgage Guarantee Scheme which is designed to encourage lenders to offer more of them.

Can I buy a home with a small deposit?

Saving enough money to buy your first or next home is a challenge. But there are mortgages for homebuyers with small deposits. These are known as 95% loan-to-value (LTV) mortgages.

The figure is the ratio of a home loan relative to a property’s value. So, a mortgage worth £190,000 on a £200,000 property has a 95% LTV.

You make up the difference between the loan value and the purchase price with a 5% deposit from savings – in this case, £10,000 – to get the keys to your own home. 

Can I get a 95% mortgage?

Lenders began offering 95% LTV mortgages again post-Covid, having paused activity during the pandemic. It was also down to a government initiative launched in April 2021 called the Mortgage Guarantee Scheme.

Under the scheme, buyers can borrow between 91% and 95% of the property value, by putting down a deposit of between 9% and 5%.

The government then provides a guarantee to mortgage lenders (worth up to 14.5% of the loan) to encourage them to offer high loan-to-value (LTV) mortgages.

A similar mortgage guarantee scheme operated under Help to Buy banner but closed its doors at the end of 2016, having run for four years. It helped 100,000 buyers onto the property ladder.

What kind of mortgages are available?

Below is a live table of the kinds of mortgage deals that are on the market right now. Enter the cost of the property value you are looking at and how much of that sum you need to borrow. This will automatically populate the loan to value box.

You will then be shown relevant mortgage deals based on your entered criteria, for example a two-year fix, at that loan to value.

Who qualifies for the Mortgage Guarantee Scheme?

The latest Mortgage Guarantee Scheme is open in England to all property buyers who can only raise a 5% deposit. However, those in line to benefit most are likely to be first-time buyers who have not benefitted from house price inflation.

Properties must be a buyer’s main and only home, based in the UK and with a maximum value of £600,000.

While the government said the scheme could apply to both new-build and existing homes, lenders are implementing their own restrictions around this – more details below.

It’s worth noting however, that the Mortgage Guarantee Scheme is a label that’s more important to lenders than borrowers. You do not need to specifically ask for a deal under the scheme. There are simply more options at 95% mortgage deals because of it.

The closing date for the scheme has been earmarked as 31 December 2022.

Major lenders including Lloyds, Santander, Barclays, HSBC, NatWest and Virgin Money all offer 95% mortgages under the Mortgage Guarantee Scheme. Note, however, they only apply to residential repayment mortgages with deposits of between 5% and 9% of the property value.

Any catches?

Lenders offering deals under the Mortgage Guarantee Scheme are applying their own caveats – the main one being that new-build properties will not qualify.

Another caveat is maximum loan size. Halifax caps lending at £500,000, for example and – while Barclays will lend up to £575,000 – it caps loans on flats at £275,000.

Virgin Money restricts lending on flats and maisonettes to buildings of four storeys or fewer, and does not lend on ex-local authority blocks.

Restrictions like these vary by lender, so be sure to check the small print and seek advice from an independent mortgage broker, should you need it.

What other 95% mortgage options are there?

If you only have a 5% deposit, your options are not limited to government schemes such as Mortgage Guarantee, Help to Buy, or shared ownership – more on these below.

Lenders including Nationwide, Yorkshire, Coventry and Leeds building societies and – most recently – first direct, all offer 95% deals on the open market, with their own sets of rules and restrictions.

Always compare all available mortgages at 95%, rather than assuming the government-backed offerings provide the best value.

How do I apply for a 95% mortgage?

You can either apply directly to a lender once you have found the deal you want, or you can seek the advice of a mortgage broker. This applies whether or not a deal is part of the Mortgage Guarantee Scheme.

A broker may also have access to deals that can’t be found by going directly to lenders. Some mortgage brokers provide a free service to customers and take their fee from lenders. Others may charge a fee for their service. 

What are the downsides of a 95% mortgage?

Because of the small deposit requirements and associated greater lending risk, no 95% mortgage deal will be the cheapest deal on the market. But mortgage rates in general are very competitive so it’s worth looking at what 95% deals are available even if you decide to wait and save a larger deposit.”

Any high loan-to-value mortgage also leaves you more exposed to the risk of negative equity (where you owe more than your property is worth) in the event that house prices fall.

Critics also claim that the return of high loan-to-value mortgages could trigger artificial house price inflation.

Will I qualify for a 95% mortgage?

This depends on your income, financial health and track record of borrowing and repaying.

Lenders will usually only lend up to a maximum 4.5 times of a borrower’s income. For example, a single applicant earning £30,000 could borrow up to £135,000. 

However these ‘income multiples’ will be considered against debt and other outgoings when it comes to calculating how much you can afford to borrow and repay every month.

The Mortgage Guarantee Scheme is also aimed at ‘creditworthy’ customers – people who have shown they can repay credit deals promptly over time – whether on a credit card or mobile phone contract, for example. 

To find out if you fit the description of ‘creditworthy’, it’s wise to check your credit report. This file details your personal borrowing history and can be accessed by lenders. It gives them an indication about whether or not you are a safe bet for a loan.

You can obtain your report from credit reference agencies like Experian, Equifax and TransUnion – and this can often be done for free.

What other schemes are there for 5% deposits?

Another option for buyers with a 5% deposit is the Government’s Help to Buy scheme. It offers a government loan of a further 20% (or 40% if you buy in London) of the property value.

This allows you to access 75% LTV mortgage deals, which are cheaper.

There is no interest to pay on the Government part of the loan for the first five years. A £1 monthly management fee applies to the equity loan until it is paid off.

The offer is solely for first-time buyers and only applies to new-build properties sold by a Help to Buy registered homebuilder.

The maximum property price under Help to Buy varies according to region, starting at £186,100 in the North East, reaching up to £600,000 in London. There are different rules for this scheme in Scotland and Wales.

Shared Ownership is another option. It’s where you just buy a share of a property through a housing association and pay rent on the portion you don’t own.

Shares are between 10% and 75% of the property price, though you can increase your share over time until you own the whole property. This is known as staircasing.

Different rules apply for shared ownership in Scotland and Northern Ireland.

In the longer term, it might also be worth looking at the First Home Scheme.

Launched in June, 2021, the First Home scheme offers key workers and local residents who want to stay in their communities but cannot afford to buy a home a discount of at least 30% off the open market price.

That same discount is then passed down to the next buyer – providing it’s also their first home. The long-term view is to ring-fence a pool of cheaper properties for those struggling to get on the local property ladder.

The First Home scheme can be used in conjunction with a 95% mortgage and participating lenders include Halifax and Nationwide, Leeds, Chorley and Darlington building societies.

It’s currently restricted to the Bolsover district and the East Midlands but is set to be rolled out to more areas of England. The government says that 10,000 homes a year could be ultimately sold under the scheme.

I have no deposit – can I get a 100% mortgage?

It is possible to borrow up to 100% of the property price, with no deposit needed at all. These deals were common in the past, but were also a trigger for the financial crisis in 2007/08.

However, so-called 100% mortgages are sold under far stricter conditions now than they were previously.

Most are only likely to be for first-time buyers. And borrowers will need the financial backing of usually a family member (or very good friend) to secure a deal. The property is still legally owned by the borrower.

These mortgages usually work in one of two ways. A friend or relative becomes a guarantor, securing their home against the loan. If a borrower defaults, guarantors may become responsible for repayments.

Alternatively, a friend or family member uses savings to guarantee the mortgage, by holding the money in a special account for a specified length of time. Barclays Family Springboard mortgage is one example of this arrangement.

Should I take a fixed or variable rate mortgage?

It’s entirely your choice whether you want to fix in your rate in return for set monthly payments, or take variable rate deal, where the rate you pay could go up or down. A mortgage broker will guide you through the pros and cons.

However, many first-time buyers are drawn to the security that a fixed rate offers, as it makes it easier to budget.

Whether you opt for fixed or variable rate deal, be sure to factor in set-up costs (arrangement fees) as well as any tie-ins during which time you will pay an expensive penalty to leave.

Can I remortgage to a 95% deal?

If your personal circumstances, credit score and income are in excellent order, it is possible to remortgage onto a 95% mortgage deal.

However, as your choice of lenders will be limited, always seek the expertise of a mortgage broker. If you ‘go it alone’ and need to make multiple mortgage applications as you have been rejected, your credit score will become damaged, making it harder to be accepted in the future.

A more likely scenario however, is that by the time you come to remortgaging, you have built up enough equity and/or cleared enough of your mortgage balance to apply for a lower LTV deal, such as 90% or even 85%.

This is more preferable scenario, not only because lower LTVs translate into lower mortgage rates, but because you will be able to compare deals from a much greater number of lenders.

What’s happening with stamp duty?

The stamp duty holiday in England and Northern Ireland expired at the end of September 2021. From 1 October, it returned to the minimum threshold of £125,000 (£300,000 for first-time buyers).

Payment breaks on Land Transaction Tax (LTT) in Wales and Land and Buildings Transaction Tax (LBTT) in Scotland ended earlier in the year.