12 May 2021 • 3mins • Yolt

What is a 95% mortgage and should I get one?

How do 95% mortgages work?

If you’re struggling to pay the rent while putting a deposit together, a 95% mortgage could help you out. That said, it’s important to weigh up the pros and cons before jumping on board.

What is the 95% mortgage scheme?

Launched by the government, it allows first-time buyers to borrow up to 95% of the price of a property. That means you only need a 5% deposit upfront, instead of the 10%-20% you might have been saving toward.

What are the pros and cons?

As with any finance deal, this scheme has its ups and down. That’s why it’s important to make sure you’ve considered all your options before deciding what’s right for you.

Pros of a 95% mortgage:

Smaller upfront deposit: ideal if you feel you’re stuck in the rent cycle, unable to save a big enough deposit
Get on the ladder quicker: if you’ve already got a nice sum set aside, a 5% deposit might mean you can secure your home quicker

Cons of a 95% mortgage:

• Maximum loan amounts: some lenders may only let you borrow up to a maximum of £250,000 on a 95% mortgage
Higher interest rates: usually, the bigger your mortgage, the more interest you pay on your loan. This means you’ll end up paying more for your property in the long run
Higher monthly repayments:don’t be caught out – the more money you borrow, the higher your monthly repayments will be. Use a free mortgage calculator to help figure out how much you can afford
Bigger risk of negative equity: if you’re starting out with just a 5% share in your home, even a small drop in house prices could mean your property is worth less than your mortgage

Am I eligible for a 95% mortgage?

First off, you’ll need to be a first-time buyer looking for a place to make your own (rather than a buy to let) Like with most mortgages, you’ll go through affordability checks with your chosen lender – including checks on your income and outgoings, and your credit score.

Are there any alternatives to a 95% mortgage?

Yes. If you’re a first-time buyer, there are plenty of options to help give you a leg up on the property ladder. Help to Buy loans and Shared Ownership are just a couple of other options you might want to check out.

Need some savvy saving tips to help you on your way? Check out our essential guide to drumming up that deposit.