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95% Mortgages

95% mortgages, backed by the UK government


A government-backed mortgage scheme will see the return of the 95% loan-to-value mortgage. Could this be good news for you as a prospective home buyer?


A key component of this government’s manifesto included a promise to help turn “generation rent” into “generation buy”. The chancellor has now revealed the first step towards making this happen.


How could the new 95% loan-to-value mortgage government scheme help you?

During the spring Budget on 3 March, Rishi Sunak announced a new government-backed scheme to encourage mortgage lenders to increase the number of 95% loan-to-value (LTV) mortgages available on the market.


This scheme will be good news for first-time buyers, who will be able to buy homes using a smaller deposit. Home movers and previous homeowners will also have access to these 95% LTV mortgages.


So, could a government-backed 95% LTV mortgage be a good choice for you?


LTV determines how much of a risk you present to a lender


LTV represents the amount you need to borrow from a lender, relative to the total value of the property. It’s most often expressed as a percentage.


Imagine you’re buying a home for £100,000. A 95% LTV mortgage means you would be taking a loan of £95,000 from your lender, offering up £5,000 as a deposit.


If you’d like more information on LTV, please see our other article which explains why LTV is important in greater detail.


95% LTV mortgages offer various benefits for buyers


95% mortgages will offer a couple of key benefits to prospective home buyers.


You’ll be able to get a home with a smaller deposit


One of the biggest obstacles for buying a home is that buyers often don’t have enough in savings for a deposit. This is especially true for first-time buyers, who are often younger and haven’t had the time to build up a cash deposit.


A 95% LTV mortgage means you’ll need just 5% of the property’s value to buy your home.


The average house price in the UK was £251,500, as of December 2020. On average, that means you’ll need a deposit of just £12,575 on a 95% LTV mortgage.


There will be a wider range of 95% LTV mortgage deals available


In 2020, many lenders withdrew their 95% mortgages due to uncertainty in the property market.


A higher LTV often means higher risk on the part of the lenders, especially when house prices fall like they did for four months in a row over the first lockdown. For example, a 95% loan means the property price only has to fall slightly for you to fall into negative equity, where you owe more than the value of your home.


If you then fail to make repayments, the lender will be unable to recoup the full amount of the loan if they have to repossess and sell the property.


At the start of June 2020, Moneyfacts found that there were just six 95% LTV mortgage deals available across the whole of the market.


The government’s scheme will broaden the number of deals on the market. A wider range of deals could give you more choice over interest rates, fees, and which lender you take your deal with.


Higher LTV typically means a higher interest rate and repayments


A 95% mortgage is a great option if you’re looking to buy with a smaller deposit. However, as higher LTV usually means more risk for the lender, it often makes it more expensive for you as a buyer in the long term.


The lender will likely charge a higher interest rate than they would if you were putting down a 10% or 20% deposit. This means you’ll pay more back over the term of the mortgage than you might if you borrowed less at a lower interest rate.


If you’re able to save that little bit extra for a slightly larger deposit, this could considerably reduce how much you have to pay. For an example of how this could impact your repayments, please see our other article for details of how LTV affects your total costs.


There are some criteria you have to meet to get a government-backed mortgage


The increased number of deals and a smaller deposit could make it easier for you to buy a home.


However, there are some criteria you must meet to qualify:


  • You must be buying a main residential home in the UK. You cannot use this scheme to buy a second home, or as a buy-to-let landlord.

  • The property must be worth £600,000 or less. Even though anyone can use the scheme, it is largely designed for first-time buyers. Therefore, there’s a limit of £600,000 for the value of the property.

  • The loan must be for a capital repayment mortgage. The scheme will only be available for capital repayment mortgages, not interest-only deals.

  • Normal affordability checks still apply. You must still meet the usual affordability checks with the lender. If you want to maximise your chances of getting the mortgage you need, please speak to us at NM Money.


High-profile lenders will be taking part in the scheme


There are plenty of high-profile lenders who have confirmed they will offer 95% LTV mortgages under the new scheme.


Lenders that have confirmed their participation include:


  • Barclays
  • Lloyds
  • NatWest
  • Santander
  • HSBC


This list is not exhaustive, and other lenders may still take up the scheme later on.


The scheme will open in April 2021 and run until December 2022.


Get in touch


If you’d like to know whether a 95% LTV mortgage is right for you, please do contact us at NM Money. To speak to one of our experts, request a callback or call us on 03300 583 859 for more information.


Please note:


Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.