95% mortgages are exactly what you might imagine, where you are borrowing against 95% of the property price, and then the remaining 5% is paid with your deposit. To demonstrate an example of this, let’s say you wanted to buy a property that was worth £150,000 with a 95% mortgage. For this, your minimum deposit would be £7,500 and you would borrow the remaining £142,500.
As we learned from the March 2021 Budget, Prime Minister Boris Johnson announced a Mortgage Guarantee Scheme for mortgage lenders, introduced with the hope of making 95% mortgages more readily available from the high street banks.
This really is great for First-Time Buyers and Home Movers, as this scheme will stick around until December 2022. Specific terms and conditions will apply. If you Get in Touch with a Mortgage Advisor in Nottingham, they will be able to look at with you, to see if you qualify.
All our clients who wish to work with us for Mortgage Advice in Nottingham, will receive a free, no-obligation mortgage consultation. During this consultation, a member of our dedicated mortgage advice team will be able to make a recommendation on the most appropriate path for you to take.
You may find that 95% mortgages tend to be more for First-Time Buyers in Nottingham & those who are Moving Home in Nottingham. Saving for a 5% deposit sounds like a pretty simple plan, but you’ll still need to have a really good credit score and be able to prove to the lender that you are able to afford your monthly mortgage repayments, before they will consider you for a 95% mortgage.
You’ll need to show the lender that you have a good credit score before you’ll be accepted for a mortgage, especially when you’re looking at getting a 95% mortgage. To improve this, we would recommend things like paying any current credit commitments on time, ensuring your addresses are updated and making sure that you’re on the voters roll. For a more detailed look at our credit score tips and tricks, please see our How to Improve Your Credit Score guide.
Affordability is something else you should also consider. Providing the lender with enough details of your income and monthly outgoings (things like your bank statements will be necessary for this) and any pre-existing credit commitments will allow them to get a general overview of whether or not you are able to afford a 95% mortgage.
It’s not uncommon these days to see lots of family members helping each other find their footing on the property ladder, with this especially being the case with parents and their desire to see their children succeed. This normally happens by a family member gifting the deposit required to proceed with a mortgage. Known by many as the “Bank of Mum & Dad, Gifted Deposits should be solely a gift, and not a loan to be paid back at any time. The lender will need this to be agreed and proven, before they will accept using it towards your mortgage.
It’s always to make sure you have the right type of mortgage, especially with something like a 95% mortgage. Each type works differently, with that choice allowing you to find one that is most appropriate for your personal circumstances.
Some homeowners and buyers tend to prefer a Fixed Rate or Tracker Mortgage, mortgage types which mean you either keep interest rates at a set amount or your interest rates will instead be tracking the Bank of England base rates.
On the other hand, you might be more comfortable with the way Interest-Only or a Repayment Mortgages work. Interest-Only allows you to benefit from cheaper payments until you need to pay a lump sum once it reaches its end (only really now used for Buy-to-Lets), whereas a Repayment mortgage (your average normal mortgage) means you’ll be paying a combination of both interest and capital every month.
You can read more about each of these different types in our Different Types of Mortgages article.
A mortgage is incredibly important financial outgoing, and as such you need to be ready for it. If you aren’t ready ahead of time, you might find yourself more likely to be affected by things like higher interest rates, remortgaging difficulties due to less equity and then negative equity.
Do not worry though, as these problems can be avoided if you’re savvy with your process to begin with. The more deposit you put down, the less risk the lender will see you as.
Putting down a larger deposit would not only reduce the interest rates by a good amount, but would also give the property more equity and reduce the risk of negative equity, which will be because you are borrowing less against your potential new home.
So, whilst the risks may provide initial uncertainty, planning ahead and saving for a larger deposit to access something like a 90% or even an 85% mortgage will be very helpful in your mortgage process and something you’ll be able to reap the rewards from down the line.