A 95% mortgage is as simple as it initially sounds; you are borrowing against 95% of the price of a home, with the remaining 5% being paid for by your deposit. An example of this is if you looked at buying yourself a home worth £150,000 with a 95% mortgage, you would then also be putting £7,500 down as your deposit, borrowing the remaining £142,500.
Following on from the Budget in March 2021, the UK Prime Minister Boris Johnson announced a Mortgage Guarantee Scheme for Lenders. The purpose of this would be to make 95% mortgages more readily available from the bigger banks.
This news is fantastic for both first-time buyers and home movers as this particular scheme will run until December 2022. There are specific terms and conditions that will apply, your Mortgage Advisor in Newcastle will be able to double check if you can qualify.
All our customers will have access to a free, no-obligation mortgage consultation where one of advisors will be able to recommend the most appropriate mortgage deal based on your individual situation.
95% mortgages are generally available to both First-Time Buyers in Newcastle & people who are looking at Moving Home in Newcastle. Whilst the primary idea of saving for a 5% deposit sounds really simple, you’ll still need to have a good enough, lender approved credit score, in order to prove that you can afford your monthly mortgage repayments. Doing this increases your chance of being granted a 95% mortgage.
A good credit score is absolutely necessary in obtaining any mortgage, especially when it’s a 95% mortgage. Factors like paying any current credit commitments on time, ensuring your addresses are accurate & up-to-date and that you’re on the voters roll, can all help build up your credit score. For a detailed and helpful guide discussing what you can do and why, please see our How to Improve Your Credit Score article.
Affordability is another one that is vital to the process. By providing details of your monthly income and regular outgoings (these can be evidenced with your bank statements) and any pre-existing credit commitments, your lender will get a detailed overview of whether or not you are able to afford a mortgage like this.
Quite often these days, we see family members, especially parents, eager to help each other get onto the property ladder. This can be done by one of these family members gifting the deposit required for the property. Often referred to as the “Bank of Mum & Dad, Gifted Deposits work solely as a gift, and not as a loan that you are required to pay back. The lender will need proof of an agreement between you and the gifter, before it can be used towards your mortgage.
When looking for a 95% mortgage, it’s important to know you’re on the right mortgage for you and your personal circumstances. Different mortgage types will all work in different ways, which allows you to explore your options and find one that is best suited for your personal and financial situation.
You could find that you are better suited for a Fixed Rate or a Tracker Mortgage, wherein you either keep interest rates at a specific amount throughout your term, if you choose the former, or with the latter you would have your interest rates follow the Bank of England base rates.
On the flip side, you might find that you would much rather go with an Interest-Only or a Repayment Mortgage. Interest-Only allows you to have cheaper payments until you need to pay a lump sum at the end (more suitable for Buy-to-Lets), whilst Repayment Mortgages means you’ll be paying a combined amount of both interest and capital per month.
You can learn more about the Different Types of Mortgages in our article, with accompanying videos.
As you might figure when it comes to such a huge financial outgoing, you need to make sure you are prepared and wary. If you don’t properly plan ahead, you could find yourself with a variety of problems, including higher interest rates, remortgaging difficulties due to less equity and then negative equity.
The positive side though is that all these can be avoided if you’re smart enough ahead of time. Something that will be very beneficial is that if you put more deposit down, you are less risk to the lender.
A larger deposit, somewhere around 10-15%, would not only reduce your interest rate significantly but would also place a lot more equity in the property. This in turn will reduce the risk of negative equity as you would be borrowing less against your home.
So all in all, whilst the risks may seem intimidating, planning ahead and saving for a bigger deposit to access something like a 90% or even an 85% mortgage will be massively beneficial and something you’ll be able to reap the rewards from in the future.