95% Mortgages for First Time Buyers

Our complete guide to 95% Mortgages and the top 6 95% Mortgage Lenders available.

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What is a 95% Mortgage?

A 95% Loan to Value (What is LTV – Loan as a percentage to the Value of your home) Mortgage is where you obtain a Mortgage on a property with a 5% deposit.

Example below:

Property Purchase price of £200,000

Deposit of £10,000

Mortgage of £190,000

The 5% can be savings you have accrued yourself or could be a gift, from a family member for example.

Please note: Recent reports in a news paper incorrectly stated that gifted deposits were no longer available. This simply isn’t true and every Mortgage Lender will currently consider gifted deposits in full or in part.

When will 95% Mortgages come back?

Following the Government announcement on the new Mortgage Guarantee Scheme for 2021. We can confirm 95% Mortgages, for most, have now returned.

Whilst 95% Mortgages didn’t completely go away, it is true to say they were unavailable for most.

This is because 95% Mortgages were only available on some Guarantor Mortgages and via the Help to Buy Schemes; Equity Loan or Shared Ownership.

95% Mortgages will now be available to First Time Buyers and non-First Timer Buyers  from April 2021 on Traditional and newly built properties as a result of the Government announcement.

The fall of high loan to value Mortgages as a result of the pandemic

Following the pandemic, Mortgage Lenders massively cut the number of high loan to value Mortgage offerings as a concern over the risk of property prices falling. Fortunately, this didn’t seem to materialise.

The fluctuation in availability of high loan to value Mortgages can be seen by the below graph:

What 95% Mortgages for First Time Buyers are available?

The following 95% Mortgages for First Time Buyers are now available, via Help to Buy:

Standard 95% Mortgages: Available on the general market and not through a particular scheme.

There are restrictions on these Mortgages in comparison to the Lenders usual criteria.

Mortgage Guarantee Scheme – The new Mortgage Guarantee Scheme was announced in the 2021 Budget. From April 2021, this will enable you to purchase a property, including non-newly built homes, with a 5% deposit.

The Mortgage Lender will then essentially take out an insurance/indemnity policy with the Government, so if in the event they need to repossess your property, the Mortgage Lender can recover some or all of their losses.

This isn’t something that you will need to worry about, as this is all done in the background between the Mortgage Lender and the Government.

Equity Loan – This is available only on new builds and is where you put a 5% deposit down in addition to taking out a 20-40% Government backed equity loan. The equity loan is put toward your deposit to give you a 25-45% deposit.

This then enables you to obtain a cheaper Mortgage and buy a property you otherwise wouldn’t be able to afford.

Shared Ownership – In some cases can be available with a 5% deposit. Shared Ownership is where you buy a percentage of your home, usually 40-60%. You then rent the remaining part from the council or housing association.

Guarantor Mortgages

Guarantor Mortgages are only available where a Family member is able to provide a sum of money of at least 10%, or a charge over the guarantors property of between 10-20%.

Top 6 95% Mortgage Lenders

Mortgage Lenders already confirmed are:

Lloyds Banking Group – Lloyds/Halifax

NatWest

HSBC

Barclays

Santander

Accord

Other Lenders are available, and more are due to be announced in the future.

The Mortgage Guarantee Scheme for 2021

The Mortgage Guarantee Scheme is due to run from April 2021 until December 2022.

An example of how the new Mortgage Guarantee Scheme will work:

How long will the new Mortgage Guarantee Scheme be open for?

The new Scheme is intended to be a temporary one.

Applications will be open from April 2021 until December 2022.

As we approach the December 2022 deadline, the Mortgage Guarantee Scheme is due to be reviewed, and if deemed necessary may be extended beyond this date.

However, if the Government feels the scheme has served it’s purpose, then it will likely be closed as expected.

95% Mortgages for Bad Credit?

There could be 95% Bad Credit Mortgages available, but it will depend on the severity of the Bad Credit and when this occurred.

It will also depend on what scheme you are taking your Mortgage out through.

There may be more options available through the Help to Buy: Equity Loan Scheme, as the equity loan increases your deposit, and thus lowers the risk to the Mortgage Lender.

The best thing you can do to check if you are eligible for a 95% Mortgage with Bad Credit, is to obtain a copy of your Credit Report and take this to a Specialist Mortgage Advisor.

We can put you in touch with a specialist if you need help with this.

95% Mortgages for Self Employed

Self employed applicants will be eligible for 95% Mortgages with most Mortgage Lenders.

So do still have some restrictions in place, so it is important to speak with a Specialist Mortgage Advisor if you are looking to obtain a Mortgage at 95%.

There may be a few Mortgage Lenders which will accept 1 years worth of accounts and latest years figures, when assessing affordability.

This will be dependent on the overall strength of your case and providing you can supply evidence of recent earnings to demonstrate the business it still trading.

Most Lenders will just want to see your latest 2 years worth of accounts and Bank Statements to evidence recent earnings.

A specialist Mortgage Advisor will also be able to assess whether your case meets the criteria to be assessed in a more preferential way. Via Lenders Contractor criteria or the CIS Mortgage Scheme for example.

Positives of 95% LTV Mortgages

Helps Buyers onto the Ladder: 95% Mortgages will help those on to the property ladder which are currently struggling or unable to.

May reduce Mortgage Rates: As mentioned above, the scheme may result in a reduction to costs on other Mortgages, for those which have a higher deposit. For example, demand for 85-90% LTV Mortgages are likely to fall, and as result the cost of these are also likely to fall.

Helps the economy: As shown by the financial crisis of 2008, the economy is heavily reliant on the stability of the property market. People being able to buy, helps keep the economy going.

Negatives of 95% LTV Mortgages

Increase in property prices: The main disadvantage could be a sharp increase in property prices.

More people buying generally leads to higher property prices. Especially if there are many more buyers than there are sellers.

A risk of Negative equity: Borrowers obtaining a Mortgage at 95% LTV, are at a greater risk of negative equity.

This is where the value of your Mortgage exceeds the value of your property. This occurs when there are a fall in House prices which can occur during economic turmoil. 

Alternatives to 95% Mortgages

Whilst it may seem obvious, it is worth mentioning. The only realistic alternative to a 95% Mortgage is obtaining a Mortgage with a larger deposit (if possible).

If you can increase your deposit, but are looking to obtain a Mortgage with a 5% deposit. Consider both options.

If you are able to increase your deposit to 10-15%, it could make a huge difference in the cost of your Mortgage.

Rates and the overall cost of a 95% LTV Mortgage will be more than mortgages at 85-90%. Just like Mortgages at 60-80% will be cheaper than Mortgages at 85-90%.

How much will I be able to borrow?

Mortgage Lenders will assess your borrowing capacity in the same way as they usually would, by assessing your Income and your Outgoings.

Your maximum borrowing will usually be capped at 4 to 4.5 times your income on Mortgages at 95%.

To get a rough idea of what you may be able to borrow and what is taken into account. Check our post out on this here.

What Mortgages will I be eligible for?

Rates for standard 95% loan to value Mortgages, are going to cost between 3-5%.

There are likely to be fee free options, as well as fee paying options. Fee paying options will likely cost between £495 and £1,499.

Under the new Mortgage Guarantee schemes terms, Mortgage Lenders are required to offer long term Fixed Rate Mortgages of at least 5 years. This is good for borrowers who are looking for rate certainty.

In addition to longer term fixed rates, there are also going to be shorter term fixed rates. This is good for those who are keen to keep costs low and those who are looking to review their circumstances in the near term.

What Mortgage Repayment options will I have?

A Capital and Interest Repayment Mortgage will likely be the only option available to you.

A Capital & Interest Repayment: This is where you repay your Mortgage balance as well as the interest to the Mortgage Lender.

Providing you keep up with repayments you are guaranteed to have repaid your Mortgage by the end of the term.

The other usual option is Interest Only.

This is unlikely to be an option, as Mortgage Lenders consider Interest Only to be a much higher risk to borrowers than a repayment Mortgage is.

What types of Mortgages will be available?

The main types of Mortgages that will be available on the Help to Buy Mortgage Guarantee Scheme will be:

Fixed Rate Mortgage: Simply put, this is where your Mortgage is fixed for a certain period of time, usually for 2 to 5 years.

The rate is best to be thought as fixed for you and the Lender.

As during this time your interest rate is guaranteed not to change. And you are unable to leave the Mortgage early without paying a fee to the lender for doing so.

Variable Rate Mortgages: Where your interest rate can vary. You will usually have a set interest rate which can fluctuate throughout the term.

The interest rate will usually change in line with the Bank of England base rate, although it doesn’t have to.

Tracker Mortgages: Where your interest rate will track a certain index, usually the Bank of England Base rate.

When the Base rate changes, so will your Mortgage rate.

What documentation will I need to provide the Mortgage Lenders?

What documentation is required for the Mortgage, will vary between Lenders.

Mortgage Lenders will usually need to verify your identity, as well as your income and outgoings.

To do this they will require the following:

Payslips for Employed Applicants or Accounts/Tax Calculations and corresponding Tax Year Overviews for any Self Employed Earnings.

Up to 3 Months Bank Statements to evidence Earnings and Outgoings.

Identification to prove your Name and Address.

What costs will I need to consider?

Lenders Arrangement/Product fees: A fee the lender will charge for arranging your Mortgage.

In general, the higher the Arrangement fee the lower, the Interest rate.

Most, if not all lenders, will also provide a low/no fee option and charge a slightly higher rate as a result. These fees tend to be between 0-£999.

Broker fees: this will depend on how complex your case is. For example, whether you have any adverse credit.

To find out exactly what it could cost, get in touch with on of our Mortgage Brokers for a free non-obligatory quotation.

Solicitors fees: for an ordinary house purchase, you can expect to pay anywhere between £1,000 and £1,500, so its important to shop around.

Always check out their Reviews before choosing a Solicitor. They’re a very important cog in the house buying process.

Stamp Duty: If you are a first time buyer in England, it is unlikely you will pay stamp duty if your property is valued less than £500,000.

For non first time buyers, Stamp duty will be due on properties worth over £125,000.

Mortgage Valuation: The Mortgage Lender may charge a fee to complete a basic valuation on your property during the application process.

This will be between 0-£250. But could be more if you need to use a specialist lender, if you have adverse credit for example.

Survey fees: You may choose to carry out a more thorough assessment on your property.

The most common, being a Homebuyers report, which will cost between £300-£500.

Full Structural report, if needed, will cost in excess of £600, however these are rarely necessary.

Compare 95% Mortgages

Speak to our whole of market Mortgage Brokers which can provide you with the specialist Mortgage Advice you need. Our Advisors will compare and recommend to you the cheapest 95% Mortgages available.

To speak to a 95% Mortgage Advisor, please complete the above or below contact forms. Or you can contact us here.

Our Mortgage Brokers

We work with a variety of Mortgage Brokers which each specialise in different Mortgage Advice areas.

When you get in touch, simply select the reason why you’re getting in touch i.e. First time buyer, Bad Credit, Remortgage etc. And we will match you to the Mortgage Broker which Specialises in your circumstances.

All of the Mortgage Brokers we work with are whole of market, FCA regulated, CeMap qualified and have consistently great reviews.

Get in touch for a free non-obligatory conversation with one of our Specialist Mortgage Advisors for further information on how they can help you.

 

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