Compare 95% LTV Mortgages

What is a 95% mortgage?

A 95% mortgage – or, more formally, a 95% LTV mortgage – sees you as the prospective home buyer supplying a deposit worth at least 5% of the value of the property you want to buy. The remaining money – that’s the other 95% – would come in the form of the mortgage itself.

For example, if you wanted to buy a home worth £300,000, for a 95% mortgage you would need a deposit of £15,000. If the property cost £200,000, meanwhile, you would need £10,000, and if it cost £500,000, you would need a 5% deposit of £25,000.

These types of mortgages became available to first-time buyers and current homeowners alike in April 2021, when the government introduced a new 5% deposit scheme. This is also known as the mortgage guarantee scheme.

When looking for a low deposit mortgage in general, you will usually be offered the following types of mortgage rates:

• Fixed-rate – usually lasting for two to five years. This kind of mortgage rate will mean you pay the same amount in monthly instalments for the duration of the fixed period of time. Fixed-rate mortgages are typically introductory offers; you will normally be moved to a standard variable rate (SVR) once it has ended. This is unless you move to a new fixed-rate deal with your existing lender, or a new provider.
• Standard variable rate – this type of mortgage rate will see your monthly repayments go up and down depending on wider interest rates, and at your mortgage provider’s discretion. Some months you may pay more than a fixed-rate mortgage, while other months you may pay less.
• Discounted variable rate – this is a cheaper version of the lender’s standard variable rate, and like a fixed interest rate, will only apply for a set period of time. Like an SVR, meanwhile, your monthly repayments will potentially rise and fall alongside the rate itself.
• Tracker rate – this is another type of variable rate, which ‘tracks’ the Bank of England’s base rate. When the base rate moves, so too will your mortgage rate. To form your tracker rate, your lender will normally add 1% to 3% on to the base rate. Like fixed rates and discounted variable rates, this is usually an introductory offer with a set end date.

Will I pay a higher rate if I have a low deposit mortgage?

One of the downsides to a low deposit mortgage, such as a 5% deposit mortgage, is that you will end up paying higher interest rates. This is because lenders will see you as a higher-risk mortgage candidate.

If you can afford to provide a larger deposit, it may be worth considering in order to potentially access more favourable mortgage rates.

» COMPARE: 90% LTV mortgages

Can I get a mortgage with a 5% deposit?

To successfully apply for a 95% LTV mortgage, you need more than just a 5% deposit. Firstly, you will need to pass the lender’s standard eligibility criteria. This will include, but is not limited to:

• Meeting the lender’s affordability and credit checks. This check will be based on your income, spending and credit score.
• Supplying the correct forms of identification, as well as evidence of income and your deposit.
• Proving your deposit comes from an approved source. Being within the maximum and minimum age requirements.

On top of this, a 95% mortgage comes with another set of criteria specific to the government 5% deposit scheme. For example:

• The cost of your property must not exceed £600,000 (some lenders will have a lower maximum value).
• Your prospective home cannot be a new-build property.
• You must be applying for a residential mortgage, not a second-home or buy-to-let mortgage.
• You must be applying for a repayment mortgage, not an interest-only mortgage.

Some lenders may have additional restrictions that apply to 95% LTV mortgages.

What are the advantages and disadvantages of a 95% LTV mortgage?

One positive of a low deposit mortgage is that it could make buying a house a little easier. It takes less time to save for a 5% deposit than a 10% deposit, which means that you may be able to buy a home more quickly.

» MORE: How to save for a mortgage deposit

There are some important downsides to be aware of, however. First, you won’t have the same level of choice if you only have a small deposit, as fewer lenders offer low-deposit mortgages.

Second, you will pay more too. Lenders view low deposit mortgages, such as a 95% LTV mortgage, as riskier than those for buyers who have more significant deposits in place. As a result, not only will you have fewer products to choose from, but you will also have to pay a higher interest rate. This means that your monthly repayments will be bigger and therefore the overall cost of your loan will be higher.

Finally, the risk of negative equity is greater with a low deposit mortgage. This happens when house prices fall, and the size of your outstanding mortgage is greater than the value of your home. Being in negative equity can make it nearly impossible to remortgage to a new deal when your initial fixed rate ends. At the same time it will also be difficult to move house as the money raised from the sale will not be enough to clear your existing mortgage, let alone provide a deposit to use on the house you want to buy.

Dropping into negative equity is easier to do when you buy with a low deposit, since the value of your home only has to fall by a relatively small amount. For example, with a 95% LTV mortgage, the property only has to fall by 6% to end up in negative equity, but with an 85% LTV mortgage, it would have to fall by 16% for you to end up in that position.

Who offers 95% mortgages?

A host of lenders announced 95% LTV mortgages following the launch of the mortgage guarantee scheme in April 2021.

You can shop around and apply to lenders directly or, you might prefer to use a mortgage broker. A broker is an independent adviser who can talk through your circumstances to help you establish what type of mortgage will be best for you and advise you on which lenders are most likely to look favourably on a mortgage application from you. However, brokers often charge a fee for their advice, so that’s an additional cost to bear in mind.

We can help you find a 95% LTV mortgage with our NerdWallet mortgage comparison tool. All you need to do is follow these simple steps:

1. Answer a series of short questions related to your mortgage situation.
2. Let the tool search the mortgage market for you.
3. Compare the tailored results.
4. Select the mortgage that best matches what you want.
5. Apply directly or through a mortgage broker, depending on the lender.
6. Or, speak to a mortgage adviser.

95% LTV Mortgages – 5% Deposit Mortgages FAQs