The UK mortgage market shows signs of improvements and is welcoming the return of 95% loan-to-value mortgages that require only a 5% down payment. This makes your dream home more attainable than ever!

95% Loan-to-Value Mortgages

We take a closer look at how the new 95% LTV mortgages will work.

The Mortgage Guarantee Scheme

The highly anticipated unveiling of the Mortgage Guarantee scheme by Rishi Sunak has helped boost consumer and lender confidence in the mortgage market.

The Government is looking to encourage lenders by acting as a guarantor on the higher 80-95% LTV mortgage range, so they have more confidence to offer 95% loan-to-value options to house buyers.

The new scheme is a great opportunity for aspiring homeowners who have been struggling to build up a deposit. The scheme will allow first-time buyers and home movers to purchase properties up to £600,000 with just a 5% deposit needed.

It is hoped that the generation of people trapped in the rental market by the high deposits needed to buy will now people able to get a foothold on the property ladder.

The Mortgage Guarantee scheme launched in April 2021 and is set to run until December 2022. Many of the UK’s biggest lenders have already launched 95% mortgage products, and more providers are joining the scheme all the time.

While being hugely beneficial for borrowers, the scheme is designed to support lenders that want the assurance of getting their money back even on riskier high loan-to-value products.

The Mortgage Guarantee scheme does not protect the buyer from missed payments and repossession. As with a standard mortgage, it is possible that they will lose their property if monthly repayments are not met.

Who Can Apply for a 95% Loan-to-Value Mortgages?

Anyone can apply for a 95% LTV mortgage, whether they’re a first-time buyer, downsizing or a second stepper. There are, however, a few criteria for those who wish to apply;

  • The property must be purchased to live in as the primary residence. Second homes and buy-to-lets are not permitted under the scheme.
  • The properties value cannot exceed £600,000, but new builds and existing properties are both eligible.
  • Only repayment mortgages are being offered under the scheme. Interest-only mortgages will not be available under the Mortgage Guarantee scheme.
  • Buyers will still be subject to the lender’s standard affordability checks and credit score assessments. Although the Government is offering assurances, lenders are still expected to carry out due diligence on all mortgages offered.

I Have a Deposit, How Do I Apply?

Buyers should get all the necessary information from a mortgage broker or directly with a lender who will advise on what 95% loan-to-value deals are being offered. As with any mortgage product, it’s essential to shop around and look at several lenders to get the best deal available.

Other Options

When it comes to financing your new home, there are several options available. A 95% loan-to-value mortgage is just one option you should consider when looking for a property.

Generally speaking, people who buy houses with more borrowed money pay higher rates on their mortgages. If you can save a larger deposit, then you will have a greater selection of mortgage products available to you with potentially more favourable interest rates.

If you’re thinking of buying a home with a 90% mortgage now, it might be wise to wait for rates to drop once more 95% mortgages hit the market.

Other options to consider;

  • The Government’s Help to Buy scheme offers a 20% equity loan (40% in London) on new-build properties in England. The scheme is now limited to first-time buyers
  • If you’re looking to buy a home in an expensive area such as London, consider a shared ownership scheme that could offer you your first step on the property ladder.
  • Some lenders offer a Guarantor mortgage where a close family member can use their home or savings as security (or guarantee) against the loan.

95% Loan-to-Value Mortgages Summary

For people who have been struggling to build up a deposit,  the 95% LTV mortgage return will be a big relief. The scheme will inevitably ignite the housing market with a significant increase in first-time buyers predicted.

As with any financial product, it’s always vital to understand all the information before committing. Mortgages can be complicated, and working with an expert mortgage broker who can advise you on the most suitable products for your circumstances can save you both time and money.