95% Mortgages Explained: Everything You Need To Know

02 June, 2021


The UK government recently announced that people can buy a home with just a 5% deposit, in a bid to help more people get on the property ladder and own their home. The 95% Mortgage Guarantee Scheme will be available from many major mortgage lenders. Launching in April 2021 and the scheme was introduced in response to the Coronavirus pandemic. 

Previously, the majority of mortgages were only available to those who could raise a 10% deposit. This new government scheme will make buying a home with a smaller deposit easier than ever. If you are looking to buy your first home or move to a new property and considering a 95% mortgage, there are a few things you need to know about the scheme.

What Is A 95% Mortgage?

A 95% mortgage is a loan for a property that only requires a deposit of 5% of the value. The remaining 95% is borrowed from a mortgage lender and paid off over the duration of the loan. Despite being recently announced by the government, 95% mortgages are not new. These low deposit mortgages have been around for many years but have become less and less popular over time. This is because lenders have always preferred homeowners to put down a 10% deposit for added security.

In March 2021, the government announced their new scheme for 5% deposits which is called the 95% Mortgage Guarantee Scheme. Under this scheme, the risk to lenders is reduced because the government shoulder some of the cost if borrowers fail to keep up with mortgage payments. From a property buyer perspective, there is no difference between a 95% mortgage offered through the scheme and a 95% mortgage outside of the scheme.

Who Is Eligible For A 95% Mortgage?

The 95% mortgage scheme was explicitly designed to help first-time buyers take their first steps onto the property ladder, but it is also open to current homeowners. If you are a homeowner but only have a small amount of equity in your property, then you could struggle to get a good remortgage deal. 95% mortgages can also help in this situation.

To be eligible for a 95% mortgage, you must:

Can You Buy Any Property With A 5% Deposit?

When buying a home with a 95% mortgage, there are some limitations to the houses you can choose. You will not be able to buy a property with a value of more than 600,000 using a 95% mortgage. You can also not use this type of mortgage to buy a new build property. This is not a restriction set out by the government but one that all participating lenders have put in place. Lenders will not allow buyers to use these mortgages for new builds because of the risk that they might not retain their value.

How To Get A 95% Mortgage?

If you are eligible for a 95% mortgage under the scheme, you can apply in the same way as you would for any other mortgage. You can either use a mortgage broker to help you find the best option for your individual circumstances or apply directly with a lender that is participating in the scheme. Most major lenders have agreed to offer 5% deposit mortgages as part of the guarantee scheme, and some smaller lenders are expected to start offering them soon.

What Other Help Is Available For Buying A Home?

The 95% Mortgage Guarantee Scheme is not the only help that the government have provided for property buyers recently. The Stamp Duty holiday was first announced in July 2020 in response to the Coronavirus pandemic and has since been extended until 30 June 2021. This means that anyone buying a home during this time, which is worth less than 500,000, will not have to pay any stamp duty. For properties with a higher value, stamp duty only needs to be paid on the remaining amount over 500,000.

If you are looking to move home and make the most of the 95% mortgage scheme and stamp duty holiday, we can help you sell your house fast. At Get An Offer, we can help you find a cash buyer for your property in as little as 28 days. For more information, contact our team today.

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