Is a 95% Mortgage a Good Option for First-Time Homebuyers?

95% mortgages sound too good to be true, but they are not! The truth is, they are the best type of mortgage for first-time buyers who cannot rely on a large deposit. Who can apply? What is the loan like? 

During the Spring Budget 2021, the government announced a new 95% mortgage guarantee scheme to enable homebuyers to get a mortgage with a 5% deposit, with the government underwriting 95% mortgage loans. It’s similar to the Help to Buy mortgage guarantee scheme

How It Works

This type of mortgage scheme allows individuals to purchase a property with only a 5% deposit. The scheme will run until December 2022 as part of the government’s efforts to maintain buoyancy in today’s housing market. 

Keep in mind that this isn’t always the cheapest option, although it may look like it at first. That’s why it’s essential to explore your options. 

You put down 5% of the value as a deposit, which can also be referred to as a 95% Loan-To-Value (LTV), which means the mortgage covers the property’s percentage price. 

Are You Eligible? 

One of the first things you need to sort out if you’re interested in getting this scheme is whether you’re eligible for it. Before anything else, lenders will look at your credit score, which will influence their decision whether they should grant you the mortgage. 

Is the Property Eligible for the 95% Mortgage? 

Not all properties are eligible for this type of mortgage scheme. Here are the criteria for eligibility: 

  • You need to purchase a house in the UK. 

  • The house should be under £600,000. 


How to Choose the Right 95% Mortgage

You need to consider two types of loans to choose the right 95% mortgage: a fixed-rate or variable-rate loan. A fixed-rate mortgage can last between two and five years, which means you don’t need to worry about your interest rates changing during that time. At the end of the mortgage term, you need to look for another deal; otherwise, it will be transferred onto the lender’s standard variable rate, which can cost you a lot of money. 

On the other hand, a variable-rate mortgage is something you should consider as well. Today, lenders offer Standard Variable-Rate (SVR) mortgages. You can also try a tracker mortgage in which the interest rate will be linked to an external benchmark. When the base rate moves, the tracker rate will as well. 

When you have chosen a loan type, make sure you compare mortgage quotes from different lenders. Doing so will show you the maximum LTV each lender can offer you and the type of mortgage available. It will also contain other fees you need to pay. 

Is a 95% Mortgage Right for You? 

When we buy a house, we do so in what is known as debt. The bank loans us money, and we pay it back over the term of the loan, typically 25 years. When we pay off our mortgage, this means we have cleared our debt and own our home outright. This works perfectly well for most people, but others may need to tap into their equity. This is where a 95% mortgage could provide a solution.

Get help from a reliable conveyancer in Manchester today. Conveyancing Expert will ensure your property transaction is completed by offering first-rate legal advice and service. Get a free quote today!