What is a 95% mortgage and who can get one?

Full answer

95% mortgages provide an important route onto the property ladder for buyers who cannot save a large deposit, but they come with trade-offs worth understanding. **How a 95% mortgage works** Instead of the more common 10% or 15% deposit requirement, a 95% mortgage allows you to borrow up to 95% of the property's purchase price, needing only a 5% deposit. On a £300,000 property, this means a deposit of just £15,000 rather than £30,000 or £45,000 under more typical deposit requirements. **Who typically uses 95% mortgages** These products are aimed predominantly at first-time buyers who have limited savings but stable, sufficient income to support the resulting mortgage repayments -- lenders assess affordability carefully, since a smaller deposit means a larger loan (and larger monthly repayments) relative to the property value. **Higher interest rates reflect higher risk** Because a 95% loan-to-value mortgage represents more risk to the lender (there is less equity buffer if property prices fall), interest rates on 95% mortgages are typically higher than on mortgages with lower loan-to-value ratios, such as 90% or 85% -- the rate difference between deposit bands can be significant, so it is worth checking whether saving even a small amount extra to reach a lower loan-to-value band could unlock a meaningfully better rate. **Government support schemes** The UK government has periodically supported the availability of 95% mortgages through schemes such as the Mortgage Guarantee Scheme, under which the government provides a partial guarantee to participating lenders, encouraging them to continue offering low-deposit mortgages that they might otherwise consider too risky to provide alone. **Risk of negative equity** Borrowing at 95% loan-to-value leaves a very thin equity buffer -- if property prices fall even slightly shortly after purchase, a 95% mortgage borrower can quickly find themselves in negative equity (owing more than the property is worth), which can make remortgaging or moving house difficult until prices recover or the mortgage balance is paid down further. **Worked example** A first-time buyer purchases a £250,000 flat using a 95% mortgage, putting down a £12,500 deposit and borrowing £237,500. If the property's value fell by more than roughly 5% shortly after purchase, the buyer could find themselves in negative equity, since their remaining equity buffer is so thin. **Practical tip** Use the Mortgage Affordability calculator to check what you could realistically borrow at 95% loan-to-value, and compare the resulting interest rate and monthly payment against slightly higher deposit bands to see whether saving a little more first could reduce your overall cost.

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