Given that the average mortgage deposit in the UK was around £59,000, equivalent to 23% of the total mortgage amount, it’s no surprise that saving for such a substantial sum can be a significant hurdle for aspiring homebuyers. However, there is good news, as there are mortgage lenders who offer options for lower deposit amounts, sometimes as low as 5%, providing a potential solution for those seeking to enter the housing market.
What is a loan to value mortgage
A loan-to-value (LTV) mortgage is a measure of the ratio between the loan amount and the appraised value of a property. It is expressed as a percentage, with the loan amount being the numerator and the appraised value being the denominator.
For instance, if a property is appraised at £200,000 and the loan amount is £150,000, the LTV would be 75%. LTV is a key factor considered by lenders when determining mortgage terms, with higher LTVs indicating higher loan risk and potentially resulting in higher interest rates or additional mortgage insurance requirements.
What is a 95% LTV mortgage?
In the context of mortgage products, a “95% mortgage” typically refers to a mortgage where the borrower is required to provide a minimum deposit of 5% but less than 10% of the property’s value. This means that the interest rates and eligibility criteria for such mortgages are often similar, whether the borrower provides a 5% deposit or a slightly higher deposit of, for example, 9.5%.
Are 95% mortgages available?
The availability of 95% loan-to-value (LTV) mortgages can vary over time and may be influenced by various factors, including market conditions and economic circumstances.
However, government-backed mortgage schemes aimed at assisting first-time buyers or those with lower deposits has reinvigorated the 95% LTV mortgage market and many mainstream lenders offer 95% LTV mortgages.
Best 95% LTV mortgages
While many mainstream lenders do offer 95% loan-to-value (LTV) mortgages, it’s important to note that the criteria and affordability requirements may be more challenging compared to mortgages with larger deposits. Therefore, it’s crucial to shop around for a reputable mortgage broker to ensure you get the best rates and terms for your circumstances. It’s worth noting that 95% LTV mortgages are generally considered higher risk by lenders, which can result in higher interest rates. Taking the time to research and work with a qualified broker can help you navigate the process and secure the most favourable rates for your 95% LTV mortgage.
Can I get a 95% LTV interest only mortgage?
Interest-only mortgages typically have different requirements compared to traditional repayment mortgages, and it’s generally more challenging to obtain an interest-only mortgage with a low deposit, such as 5%. Most lenders typically require a higher deposit, often around 25% or more, for interest-only mortgages.
95% LTV products and rates
Mortgage lending, the amount of deposit you can put down on a property can affect the interest rates and terms offered by banks and lenders. A smaller deposit, such as a 5% deposit, is considered higher risk by lenders, as it represents a higher loan-to-value (LTV) ratio.
As a result, banks may offer higher interest rates on mortgages with smaller deposits compared to those with larger deposits or lower LTV ratios.
Banks may offer fixed or tracker rate products for mortgages with smaller deposits, typically ranging from 2, 3, or 5 years.
Fixed rates mean that the interest rate remains the same for the fixed term, while tracker rates are linked to an external benchmark, such as the Bank of England’s base rate, and may change during the term of the mortgage.
95% LTV fees
95% LTV mortgage products may have a range of fees, from no fees to fees up to £999 or more. However, it’s important to note that if adding fees to the mortgage takes the loan-to-value ratio over 95%, it may not be allowed by the lender. This is because it increases the risk for the lender, and they may have restrictions on exceeding a certain LTV threshold.
How long should I fix in for?
The decision on what mortgage product and term to choose depends on your individual circumstances and financial goals. It’s important to strike a balance between the interest rate and product features that work best for you.
For example, choosing a longer fixed term, such as 5 years, may provide stability in terms of knowing your mortgage payments won’t change during that period. However, it may also mean that you won’t be able to take advantage of potential increases in equity or changes in the market interest rates during that time.
On the other hand, opting for a shorter fixed term, like 2 years, may give you more flexibility to reassess and potentially switch to a better rate or lender if your circumstances change, or if you plan to move in the near future.
It’s also important to consider the possibility of needing to move or remortgage before the end of the fixed term. If you anticipate a move or a change in your circumstances, choosing a product end date that aligns with your plans can be beneficial to avoid potential early repayment charges or other fees associated with ending a mortgage contract early.
Should I get a 95% LTV mortgage?
The decision to get a 95% mortgage, or any mortgage with a smaller deposit, is a personal one and should be carefully considered based on your individual circumstances.
One important factor to consider is the comparison between renting and buying. Owning a home can offer advantages such as building equity, potential appreciation in property value, and the ability to customise and make a property your own.
However, it also comes with responsibilities such as mortgage payments, maintenance costs, and potential risks associated with property ownership. Renting, on the other hand, may offer more flexibility and lower upfront costs, but may not provide the same long-term financial benefits as owning a property.
Another consideration is whether you can afford to save for a larger deposit. With a larger deposit, you may be able to secure a mortgage with a lower loan-to-value (LTV) ratio, which could potentially result in lower interest rates and better mortgage terms. It may be worth delaying your home purchase until you can save a larger deposit, such as reaching the next threshold (e.g., from 9% to 10%), if it’s financially feasible for you.
Affordability on 95% LTV mortgages
Typically, mortgages are offered at 4-5 times income, but 95% Loan-to-Value (LTV) mortgages are often capped at 4.5 times income plus the deposit. However, there may be exceptions to this rule for specific product types, albeit rare.
Credit score requirements on 95% LTV mortgage
While there is no specific minimum credit score requirement for 95% Loan-to-Value (LTV) mortgages, these types of mortgages are evaluated based on the lender’s assessment of the borrower’s overall credit risk profile, and credit score is just one factor among many.
Generally, the credit score thresholds for 95% LTV products are higher compared to lower LTV ones, meaning that having below-average credit may make it challenging to secure a mortgage at 95% LTV.
Lenders take into consideration various factors, including credit history, employment stability, income, and other financial details when assessing the creditworthiness of borrowers for high LTV mortgages. It’s essential to maintain a good credit history and financial stability to increase the chances of approval for a mortgage with a high LTV ratio.
Can I get a 95% if moving house
Typically, traditional mortgages for homebuyers require a minimum deposit of 10% of the property’s purchase price. While there are mortgage products available at 95% Loan-to-Value (LTV) ratio, where the borrower only needs to provide a 5% deposit, these types of mortgages are less common and may be harder to find.
95% LTV mortgage on a flat
95% Loan-to-Value (LTV) mortgages are available for flats, but certain lenders may have stricter requirements, such as larger deposit amounts. For instance, Nationwide and HSBC may ask for a 15% deposit for flats, compared to the standard 5% for a 95% LTV mortgage.
New build properties often have different deposit requirements compared to pre-owned properties. New build flats may require higher deposits, typically ranging from 15% to 25% of the property’s purchase price, while new build houses may require deposits of around 10% to 15%. However, there are lenders that offer 95% Loan-to-Value (LTV) mortgages for new build properties, which means borrowers may only need to provide a 5% deposit.
Should I put more than 5% deposit down?
If you have the means to provide a deposit higher than 5%, whether it’s worth doing so depends on your specific circumstances. For instance, if you have 10% available but want to keep some funds for property renovations or as a savings buffer, it may be worth considering. However, it’s important to note that putting down anything between 5-10% may not necessarily result in a better interest rate. Lenders may have specific thresholds, and putting down 7% or 5% may secure the same rate. It’s crucial to carefully evaluate the benefits of retaining funds versus potential interest rates and monthly payments
It’s important to keep in mind that if you choose to put down a higher deposit, you may be closer to the next loan-to-value (LTV) bracket when you remortgage. However, holding back some funds to add value to the property through renovations or improvements may help you reach the next LTV bracket more quickly. This could potentially result in better interest rates and terms when you remortgage in the future.
How can Strive Mortgages help
Having a mortgage broker with experience in arranging 95% LTV mortgages on your side can save you time, stress, and money, and provide you with one less thing to worry about. If you’re considering buying or remortgaging, we would love hear from you.