Buying your first home is an exhilarating experience – a dream come true! Having your nurturing shelter to unwind… make unforgettable memories with your family!! For many, it is an exciting milestone they will ever achieve in their lives. But amid all the enthusiasm comes the hurdle of saving for a deposit to get a mortgage.
It can be a daunting experience stumping up thousands of pounds to make a hefty deposit and secure a mortgage from the bank. Thankfully, a 5% deposit mortgage can be your saviour! This means you can borrow up to 95% of your property’s value and put down as low as 5% as a deposit.

Let’s understand what a 95 percent mortgage for a first-time buyer is and how it works.

An Overview of 95% Mortgage

Most mortgages in the UK need to pay at least 10% of your property value as a deposit. Based on your creditworthiness and other factors, some lenders may even require you to deposit up to 20% of the home’s value. However, according to the new mortgage scheme 2024, the government ‘guarantees’ a 95% mortgage for home buyers with only a 5% deposit.  Since the market crash in 2008, most banks and lending institutions in the UK require a minimum of 10-20% mortgage deposit. So, with an average home purchase price of around £360,000, you may need to pay at least £36,000 as a deposit. It can be overwhelming for many homebuyers, especially if you are a first-time buyer.

To ease the burden for home buyers, the 95 percent mortgage government scheme was introduced in April 2021. This type of mortgage is ideally designed for first-time buyers who often do not have substantial deposit money to buy a home on a mortgage. It is the highest loan-to-value (LTV) mortgage available in the UK and comes with a broad range of benefits for home buyers.

How Do No-Deposit Mortgages Work?

Under the 95% mortgage scheme, banks and building societies lend 95% of the property’s purchase value as a mortgage and only 5% as a deposit. To put it simply, with this type of mortgage, you can potentially buy a home by putting down only 5 percent of the property value as an upfront deposit. Often, this is the money you might have saved to buy your first home. If you are moving home or remortgaging, you can use the equity in your current property to pay down the deposit.

In addition to a 5% deposit, you will also need to fulfill the lending company’s eligibility criteria. Most of them will let you take out up to 4.5 times your monthly salary and you should also have a good credit score. When you secure a mortgage under the mortgage guarantee scheme, you will need to make monthly repayments as per the terms & conditions. The repayment amount is computed based on whether you take a fixed-rate mortgage or a variable-rate mortgage and the term length. However, like any good thing, this type of mortgage also comes with certain risks. These include higher interest rates and no equity in the property until final repayment. The interest rates are also subject to market fluctuations.

Am I Eligible for 95 Percent Mortgage Financing?

Can you get a 95% mortgage? The eligibility criteria for 95% percent mortgages in the UK are typically the same as most other mortgages. In addition to the normal checks, there are certain
requirements you need to fulfill:
1. You must be at least 18 years old and a lawful resident of the UK.
2. You must take out a residential property mortgage and not one on a buy-to-let property.
3. The property value should not be more than £600,000 and it should not be classified as a
new build property.
4. You can borrow no more than £500,000 on your property.
5. The loan-to-value should be between 91% and 95%, whereas the deposit amount should
be around 5-9%.
6. It should be a repayment mortgage on your property and not an interest-only mortgage.

Conclusion – Is 95 Percent Mortgage the Right Option For Me?

Whether you should get a 95% deposit mortgage or not will depend on your home’s purchase value and affordability. You should consider the advantages and limitations of this type of mortgage before applying. An experienced financial agent may help you to buy the mortgage guarantee scheme, so you can take out a mortgage on your home with a minimum deposit of only 5%.

Attention: Late repayments can cause you serious money problems. For help go to moneyhelper.org.uk