95% LTV mortgages

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What is a 95% mortgage?

A 95% mortgage is a mortgage where you provide a 5% deposit up front, and the value of the loan covers the remaining 95% of the property price.

It has a 95% loan-to-value (LTV) ratio - the LTV ratio describes how much you are borrowing in relation to the price of your house.

For example: if you borrow £95,000 for a house costing £100,000, then your loan-to-value ratio is 95,000/100,000, or 95%.

Unless you opt for a guarantor mortgage, a 95% LTV mortgage is typically the most that any mortgage lender will be willing to offer.

How do 95% mortgages work?

With a 95% mortgages, you pay a deposit worth 5% of the property value. The mortgage lender then loans you the remaining 95%.

Example: For a property costing £150,000 you'd need £7,500 for a 5% deposit. Your lender would then lend you £142,500 to cover the remaining 95%.

You'll repay the 95% loan over the full term of the mortgage (an average of 25-30 years), alongside interest payments. The interest rate will depend on the deal you get when you first take out the mortgage, and those you remortgage to once each deal ends.

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Types of 95% mortgages

First time buyer

95% LTV is a popular option for many first-time buyer mortgages, as it's more manageable to save up a 5% deposit for a property, than 10 or 15%.

This helps first-time buyers get on the property ladder faster - as saving a larger deposit might delay this by a few years. There aren't as many 95% mortgage options as there are for lower LTV products though, so some buyers may still prefer to save a bit longer.

It's also worth considering that a larger deposit (and therefore lower LTV) will give you access to more competitive interest rates.

Moving home

If you're moving home and the equity you've built up in your current home amounts to 5% of the value of the property you're moving to, you might opt for a 95% mortgage.

However, you may also want to add your savings to the equity - which is used instead of a deposit - or build up bit more equity. Whether you're buying your first home, moving, or just remortgaging, a lower LTV ratio will allow you to access to better mortgage deals.

Remortgage

It's not particularly easy to get a 95% LTV remortgage deal. Most lenders would likely expect you to build up more equity before you consider remortgaging, if you already own a property.

You may be better aiming to remortgage at a higher LTV or speaking to a mortgage broker who can advise on the best options available to you.

Why does loan-to-value matter?

The loan-to-value ratio is a huge factor for lenders to decide how much they can lend you, and at what rate.

If you borrow more in relation to your home's value, then you're a higher risk for the lender, as there’s more for you to pay back.

That also means there’s more risk for you, the borrower. The more you borrow, the more you have to pay back and, crucially, the more interest you will eventually pay over the lifetime of the mortgage.

You're also more likely to fall into negative equity more easily, the greater percentage of the property value you owe. This is because if the property prices suddenly fell, it would be a shorter fall until you owed more than your home's new value.

What do 95% mortgage lenders look for?

Eligibility for 95% mortgage deals is similar to lower LTV mortgages, with the same affordability criteria applied that lenders will be looking for so that they can be confident in your ability to make repayments.

A prospective lender will assess your income, as well as reviewing your expenses and any debt you owe before deciding whether or not to offer you a mortgage. Your credit history will affect your ability to borrow too. The best 95% LTV mortgage rates will be available to those with a good credit score and stable income.

Government 95% mortgage guarantee scheme

Due to the increased risks for lenders, during the COVID-19 pandemic, 95% LTV mortgages weren't generally available. However, 95% mortgages saw a resurgence in April 2021 due to the government launch of a new 95% mortgage guarantee scheme. The intention of the scheme was to increase the availability of these mortgages by making lender's more confident in their lending.

Under the scheme the government guarantees any amount borrowed over 80% to reduce the risk for lenders and encourage banks to offer more high LTV mortgages.

The scheme is ending in December 2023, however, as more lenders have returned to offering 95% mortgages generally, this should not mean that availability is reduced after that.

How much can I borrow with a 95% mortgage?

How much you can borrow from a mortgage lender depends on your individual affordability.

A lender will generally base your borrowing on your annual income – you can normally borrow around 4-4.5 times this figure.

However, they will also look at your outgoings to determine whether you can afford the repayments. That's why it's often a good idea to assess your spending habits three to six months before applying for a mortgage.

Lenders also review your credit history to check whether you can reliably manage debt. It's worth checking your credit score before you apply and trying to resolve any issues, including errors on your report.

If your score is lower than you expected, you can also take steps to build it, like using a credit card for small payments and always repaying on time, or registering on the electoral roll (if you haven't already) as lenders see this as a sign of reliability.

While a 95% mortgage deal allows you to get on the property ladder faster, if you're able to save a larger deposit, you'll typically have a better selection of rates and deals to choose from. You'll also be less vulnerable to negative equity the greater your deposit amount”

Kellie Steed, Mortgage Content Writer

Are there alternatives to a 95% mortgage?

If you're not sure if a 95% mortgage is for you, learn how to compare our best mortgage rates or take a look at some of the other LTV mortgage options below.

95% LTV Mortgages FAQs

Yes, it's highly likely that it will be higher than someone borrowing at a lower LTV. This is because the lender considers the greater the LTV the greater the risk to them. They, therefore, charge a higher rate to compensate this.

Mortgage rates tend to reduce in increments of around 5%, so if you could offer a 10% deposit, rather than 5%, this would be likely to make a difference to the rates available to you.

It really depends on your priorities. If you're looking to move as soon as you can, you may feel that paying a higher rate of interest is warranted - especially if house prices are expected to rise.

Of course, if you're renting whilst you save, it's also worth considering how much this inhibits your ability to save a larger deposit - and how that rent may be better spent paying off your own home.

If your main priority is to pay the least interest possible over the duration of your mortgage term, however, it's probably best to save as much as possible before you start the home buying journey. Those with a larger deposit will almost always benefit from better rates.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

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