95% LTV Mortgage

A 95% mortgage enables you to borrow up to 95% of the purchase price of the property you want to buy, with the remaining 5% made up as your deposit.

An arrangement like this will sometimes be referred to as a 95% LTV mortgage, where LTV stands for ‘loan-to-value’ In other words, the mortgage is for 95% of the property’s market price.

Here is an example:

• Property market price £150,000.
• 95% mortgage of £142,500.
• Deposit of £7,500

At the time of writing this page, Sept 2020, there are currently no standard 95% mortgages available, however there are other ways in which having a 5% deposit can allow you to get on the property ladder such as the Help to Buy Scheme, Shared Ownership Scheme or family assistance mortgages.

The Government’s Help to Buy scheme can be a great opportunity for those who are struggling to raise a deposit of more than 5%.

The Help to Buy scheme makes it easier for first-time buyers and home movers to buy a property with a 5% deposit, The government scheme will then provide you with an equity loan up to an additional 20% of the house value or (40% if you’re buying in London) and you can then get a mortgage for the remaining balance.

The scheme can only be used for new-build properties and the equity loan is interest-free for the first five years, after this time you would have to start paying this back.

Help to Buy example:

• PV £400,000.
• 5% Deposit £20,000.
• 20% Help to Buy Equity Loan = £80,000.
• 75% Mortgage for £300,000

You can pay back the equity loan either by selling the property or you could pay a lump sum back directly. Please note the Help to Buy share will be based upon the current market value when working out how much you owe.

The Shared Ownership Scheme is a great way for you to be able to buy a share of the home you are looking to purchase and put down only a 5% deposit. The share element of the property that you don’t buy you then pay rent on. It is important that you are able to make both the repayments on the mortgage and rent plus any other associated costs that go along with the purchase.

Shared Ownership Example:

• Property Value £400,000.
• Purchase 40% = £160,000.
• 5% deposit = £8,000.
• 95% mortgage of the share you are buying = £152,000.

The 60% share element that you have not purchased you will pay rent on. You have the ability to buy more shares within the property at a later stage generally in increments of 10%, however from April 2021 this is changing to allow you to potentially by extra shares at 1% per time.

These are popular where clients are unable to raise a sufficient deposit themselves and family members are willing to provide assistance with this. An example of how this works is where the parents put a 10% deposit into a savings account with the lender as security and then the client takes out a 100% mortgage on the property.

For example:

• Property Value £400,000.
• Parents put 10% into a savings account of £40,000.
• Mortgage For £400,000.

The parents will earn interest on the money they deposit into a savings account and in 5 year’s they can get their money back providing the borrower has kept up their repayments.

As with most areas of mortgage finance, the current global pandemic has seen many mortgage products being taken off the market. This was very apparent in the last six months, as mortgage lenders have been taking their 95% products out of the market place.

However, things are beginning to change – if only slightly – in the last few weeks, there were a handful of mortgage providers offering 95% mortgages deals, but there are still far less 95% Mortgages available than there were before the Covid pandemic started. At this present time, these 95% mortgages, seem to be provided by mortgage lenders who are providing things like family-assist mortgages where the home-buyer has help from their parents.

This means that most 95% mortgages on the market are not available to the majority of buyers.

If you can put down a bigger deposit on a property you’ll find that you would have a wider choice of mortgages with much more competitive interest rates. So if you can wait, it could be worth you taking the time to save up a bit more if you can.

But if you are renting and at the same time trying to save up for a deposit, you may feel like you are wasting your money, and you would prefer to get on the property ladder yourself and not pay someone elses mortgage, as soon as possible. And if house prices were to rise, you could find it takes you even longer to save up enough of a deposit.

If you have built up savings over a period of time this is perfectly acceptable. May be your parents or immediate family are able to help you and if they were to gift you a deposit this would also be acceptable. If you are borrowing for a deposit most lenders will not accept this.

When it comes to deciding how much they’re prepared to lend you, Mortgage lenders and some Building societies will assess your current income, outgoings, credit profile and maybe take your credit score into account.

Every lender has different calculations, so you may get declined by one lender, but still be accepted by another. Working with a mortgage broker who has extensive knowledge of the market and how lenders operate really is important.

When choosing a mortgage, you’ll need to decide whether you want to take out a fixed-rate or a variable-rate, but if you use a specialist Mortgage broker like The Moneyhub Limited, who have specialist advisors, they will advise you on the products available.

A fixed rate will usually last between two and five years and the benefit is you won’t have to worry about interest rates rising and your monthly payments going up during that period. If you wanted to redeem your mortgage deal before the initial fixed term ends, you would probably have redemption fees, this is known as an early repayment charge or ERC.

At the end of the initial fixed rate period, you should look for another competitive deal. If you leave it, you may go on the lenders Standard Variable rate and this could be expensive for you as your payments may rise. Your mortgage lender should let you know beforehand when your mortgage rate is coming to an end, this will enable you to look to change to another favourable rate.

Variable rates can be lower when compared to fixed rates however the rate could increase which would result in your monthly payments increasing, but if rates reduce it could mean that your payments will also reduce.

Variable rates can be linked to the lenders standard variable rate (SVR), Libor or the Bank of England base rate.

To get mortgage advice please call the office or complete the above enquiry form and a specialist adviser will be able to talk you through your options as laid out above. We would be happy to help and all questions are welcomed.