Guide to 95 Mortgages

One of the biggest obstacles to getting a mortgage is providing sufficient deposit. First time buyers in particular struggle in this area as they have no property with equity they already own and over the last decade, savings rates have been extremely low.

The good news is that a range of lenders provide 95% mortgages, requiring only a 5% deposit. This makes obtaining a mortgage much easier for cash strapped buyers and can help you onto the property ladder.

Let’s explore more in our guide to 95 mortgages.

How Does a 95 Mortgage Work?

Nearly all mortgage products require a deposit. This is because lenders do not want to take on 100% of the risk involved in lending on properties. In this respect a deposit is a fair practice as borrowers benefit from being loaned a substantial amount of money and in turn take on a portion of the risk.

Typically, residential mortgages require a 10% deposit. But with property prices rising, wages remaining fairly stagnant in real terms and interest rates being low for a long time – borrowers have found it increasingly difficult to get the 10% deposit.

Lenders realised this and some now offer 5% deposit mortgages. To put this into perspective, when buying a £300,000 with a 10% deposit, you would need £30,000. With a 5% deposit, you would only need £15,000.

This is a large difference and can be invaluable if you are struggling to save for a deposit and that’s why so many people are asking “how does 95 mortgages work”.

Do 95 Mortgages Have Higher Interest Rates?

When comparing a 5% deposit mortgage to a 10% deposit mortgage from the same lender, you will notice the interest rates are higher on the 5% deposit mortgage.

This is because lenders offering 95% of the property value are taking on more risk, especially if property prices fall and you find yourself with negative equity.

Interest rates are indicative of the risk the lender has when arranging a mortgage. A 5% deposit mortgage will have higher risk so will have higher interest rates.

How Hard is it to Get a 95 Mortgage?

The answer to the question “how hard is it to get a 95 mortgage” is not black and white. First, it can be a little more difficult to obtain a 95 mortgage because there is heightened risk for lenders.

Some lenders offering 95 mortgages will require you to have good credit score.

Lenders will definitely require your income to pass affordability on the remaining 95%.

For example, if you have a 10% mortgage, you will need to borrow less, and your income will not need to be as high for the same level of borrowing on a 5% mortgage.

Typically, 95 mortgages are readily accessible to employed borrowers. Self-employed borrowers may find a 95 mortgage difficult to obtain. It will largely depend on your personal situation if you are self-employed.

How Much Can I Borrow on a 95 Mortgage?

How much you can borrow is totally dependent on your income level and the specific lender your broker has recommended.

If you wish to borrow a certain amount, it is best to discuss this with your broker so they can find a lender who works best with your affordability calculation.

In any case, your mortgage broker will be able to answer the question “how much can I borrow on a 95 mortgage” by calculating the maximum amount you can borrow. This is perfect as you will be able to narrow your property search to houses you know you can afford.

Are There Risks Involved with 95 Mortgages?

Yes, there are two main risks involved with 95 mortgages.

The first is if your property value drops by more than 5% while you have the mortgage. Known as negative equity this means you would be paying more on your capital borrowing than the property is worth. Remember, even if the property drops in value, you will still owe the full amount you agreed to borrow on your mortgage.

The second risk is affordability. While lenders conduct affordability calculations, your income will likely change over the mortgage term. 95 mortgages have higher borrowing amounts and therefore have higher monthly payments comparative to an equal mortgage with a 10% deposit.

Speak to a Mortgage Specialist

95 mortgages are one of many innovative products lenders are now providing to help first time buyers. It might be the perfect product for you, or there may be a better product available that you have not considered.

Your mortgage broker will make their recommendation based on your overall circumstances and source you the best product at the best rate.

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Broker. Boon Brokers provides fee FREE mortgage advice.

Contact Boon Brokers to understand how to get a 95 mortgage today.