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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 from April 2021
  • 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 (a mortgage adviser will help with this)

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. If you still think you might not have enough, take a look at our article on buying a home with a small deposit.

Would you like to find out whether a 95% mortgage product is right for you? Or maybe just fancy a chat to discuss your options? We’re always here to help. Feel free to get in touch and contact us today.

Because we play by the book we want to tell you that…

Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.

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