We spoke with Brian Murphy, head of lending at Mortgage Advice Bureau (MAB), the UK’s leading mortgage intermediary brand with over 1,500 expert mortgage and protection advisers.
What is a 95% mortgage?
If you’ve been trying to buy your next home but haven’t yet saved up a big enough deposit, you could be eligible to apply for a 95% loan to value (LTV) mortgage. This means that you may be able to buy a home with just a 5% deposit.
What are they?
First things first - a 95% mortgage is a type of mortgage that allows you to borrow 95% of the property price from a lender. The remaining 5% is covered through your deposit.
How are these mortgages now available?
The UK Government will be introducing a new scheme to incentivise lenders to reintroduce 95% mortgage deals from April 2021. These types of mortgages have been available previously but the number of 95% mortgage products has largely decreased during the pandemic.
The new mortgage guarantee scheme will see the UK Government act as a safety net for lenders. In the worst case scenario, if or where the property is repossessed and sold at a loss, the Government will take on some of the losses incurred by the lender. In return, lenders will have greater incentive to offer 95% mortgage products to people looking to buy a new home, as they’ll carry less risk.
What do I need to know?
There’s a few things you should know about the new scheme:
- It will launch in April 2021 (expected around mid-April but we await further details)
- You can purchase properties up to £600,000 with a 5% deposit
- It’s open to all homebuyers (not just first time buyers)
- Normal mortgage affordability checks will still be in place
- Although we do not yet know any product specific details, the government has confirmed many of the main high street lenders will be offering 95% mortgages including Lloyds, NatWest, Santander, Barclays and HSBC, with Virgin Money and others expected to follow
Can I now get a mortgage?
You might have guessed it, but this all depends on your individual circumstances and affordability, which can be assessed by an expert mortgage adviser. However, as you now only require a 5% deposit for a 95% LTV mortgage, many prospective homebuyers could find they have enough to buy their first property.
For example, let’s say you were aiming to buy a home for £200,000 through a 90% LTV mortgage. Your deposit would have been £20,000.
With a 95% LTV mortgage, your deposit could be as low as £10,000. You could even use savings from a Lifetime ISA to put towards your deposit.
Would you like to find out whether a 95% mortgage product is right for you? Arrange a call with one of MAB’s expert mortgage advisers to discuss your options, here.
