What is a 95% Mortgage and how can you get one?
A 95% mortgage is a mortgage that allows you to borrow 95% of a properties value. Meaning you only require a 5% personal deposit to buy a property. So for a £200,000 property you would only need a deposit of £10,000. With high rents and property prices rising, saving for a deposit can be one of the major barriers for people looking to get on the property ladder. With only a 5% deposit required this puts home ownership within reach for many more people.
Prior to Covid many high street lenders offered 95% mortgages but when the pandemic kicked in these were quickly removed and have not returned since. Following the budget announcement on 3rd March it has been confirmed that 95% mortgages will be back and available from a number of the big banks from April. The government will guarantee a portion of the mortgage in the event a borrower defaults and the property has to be repossessed. This is to give lenders confidence to be able to offer these products.
The scheme is available to all home buyers (not just first-time buyers) from April 2021 on properties worth up to £600,000. Major lenders including, Barclays, HSBC, NatWest and Santander have agreed to participate from April, with more, including Virgin Money, likely to join soon after.
Even though the government will be offering a guarantee to lenders to be able to offer these deals. You will still need to be able to afford the mortgage. Most lenders will lend up to 4.5 times your annual income, subject to credit score and personal expenditure meaning although it may be possible to buy a house with as little as a 5% deposit you may still be limited in the amount you can actually borrow. Why not get a rough idea below with our mortgage calculator.
Under the new scheme you should see no real difference when taking out a mortgage. You should be able to take out a 95% mortgage with the banks offering these products or through a mortgage adviser who will assess your circumstances and advise you on the right and cheapest mortgage for your situation.
A mortgage adviser will review your income, outgoings, credit history and overall situation. They will be able to tell you if it is possible to get a 95% mortgage or whether you will still require a larger deposit to buy a house.
Fixed rate mortgage – a fixed rate mortgage means your monthly mortgage payment remains the same for a period of time. Usually 2,3 or 5 years. These mortgages may also have early repayment charges if you need to repay your mortgage early. Under the new scheme lenders will have to offer a five year fixed deal as part of their offering for those who want longer term security.
Most borrowers will opt for a fixed rate 95% mortgage to ensure payments remain stable and protected against interest rate rises.
Lenders will look at a number of things before deciding whether or not they will offer you a high loan to value mortgage. Your credit history, your income and outgoings. Along with your personal and future circumstances and the impact of any interest rate rises in the future.
Things like missed payments, not being on the voters roll or addresses not being updated with providers can have an impact on your credit score and therefore your ability to snap up a 95% mortgage. Not sure what your credit report shows then send it to an adviser who will happily talk you through it. Credit Report
Getting together things like payslips, tax returns, bank statements, savings statements and ID can help to speed things up when it comes to getting a mortgage. Exactly what documents will be required will depend on the lender but these are usually a good starting point.
Just because 95% mortgages are available doesn’t mean you’ll be either eligible or that they are right for you. There are a number of other costs associated with buying a property such as solicitor fees, survey fees and moving costs so be prepared with extra money for these. Also the bigger deposit you have the lower interest rates tend to be and more mortgage options you may have so if possible save as much as possible. How to get on the property ladder
These are just a few simple steps if you are starting to think about a 95% mortgage or any new mortgage. The simplest way however is to speak to an expert mortgage adviser who can walk you through the process. They will explain your options and advise you on the right 95% mortgage for you. Speak with one of our friendly experts! Info@bluecrocodile.co.uk