95% Mortgages


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Budget 2021: New mortgage guarantee scheme to launch

On 3 March 2021, the Chancellor announced a new mortgage guarantee scheme for first-time buyers and home movers in his Budget speech. The scheme will involve the government offering a guarantee to banks to encourage them to offer 95% mortgages, helping people buy a home with a 5% deposit. The scheme will run from April 2021 to December 2022, with new and existing properties priced up to £600,000 all eligible.

What is a 95% mortgage?

A 95% mortgage is a loan for 95% of a property’s price, where you put down a 5% deposit to cover the rest. For example, if you wanted to buy a house worth £200,000 with a 95% mortgage, you would put down £10,000 of your own money and borrow the remaining £190,000.

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How much could you borrow?

You could theoretically borrow up to five times your salary (or combined salary if you’re buying with someone else) with a 95% mortgage. For example, if you had saved a 5% deposit of £10,000 for a £200,000 home, you'd usually need a salary of at least £38,000 (or a combined salary of the same amount for a couple) to be able to borrow the remaining £190,000.   The amount you'll be able to borrow will vary depending on the lender and your personal circumstances. Some lenders place caps at 4.5 or 4.75 times your annual income.

95% mortgage rates and availability

The impact of coronavirus on the economy has made it much harder to get a 95% mortgage - in fact there were only three still on the market in February 2021, down from 273 in March 2020. However, the government has announced that it will be launching a 95% mortgage guarantee scheme, which has prompted several major banks to commit to launching new deals from April 2021. 


Should I try to get a low-deposit deal now?

Generally speaking, rates on 95% mortgages are around 0.7%-1% more expensive than 90% deals, so if you're able to save a bigger deposit you could benefit from much lower monthly repayments. There's also some uncertainty around whether house prices will go up or down in the next few months. A drop in house prices would make low-deposit deals more risky, as borrowers could potentially be left in negative equity.


Could you get a 95% mortgage?

95% mortgages are theoretically available to both first-time buyers and home movers. But saving up a 5% deposit is only half the battle – you’ll need to be able to prove that you earn enough to meet the monthly mortgage repayments before anyone will consider giving you a 95% mortgage.


Can you get a 95% mortgage on a new-build home?

It has always been difficult to get a 95% mortgage on new-build homes, and you're unlikely to find a suitable deal in the current climate. If you're interested in buying a new-build property but can't borrow enough, it might be worth looking into a Help to Buy equity loan, where you can boost a 5% deposit with a government loan, meaning you take out a smaller mortgage.


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