The number of 95% mortgages across the UK has risen by a staggering 1,262% since January, according to new research from comparison website MoneySuperMarket. Here is the full scoop and an examination of what the increased availability of the 95% mortgage might mean for buyers.
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What is a 95% mortgage?
A 95% mortgage allows you to borrow up to 95% of the purchase price of a home while contributing just a 5% deposit. So, if you are buying a property worth £200,000, you will contribute £10,000 as your deposit and the mortgage will cover the remaining £190,000.
Most lenders stopped offering 95% mortgages in the aftermath of the pandemic last year due to the perceived higher risk. Lenders see 95% mortgages as vulnerable to fluctuations in house prices that can lead to homeowners being in negative equity.
But earlier this year, the government introduced a mortgage guarantee scheme. Under the scheme, the government guarantees a portion of the lender’s losses if borrowers default on the loan. This has given lenders more confidence in offering 95% deposit mortgages, and many are now doing so.
What has happened to 95% mortgages since January?
According to MoneySuperMarket, the number of 95% loan to value (LTV) mortgages increased by 1,262% from 13 in January to 177 in July. Here’s a look at the total number of 95% mortgages agreed.
|
Month |
Number of 95% Mortgages |
|
Jan 2021 |
13 |
|
Feb 2021 |
19 |
|
Mar 2021 |
19 |
|
Apr 2021 |
35 |
|
May 2021 |
76 |
|
June 2021 |
140 |
|
July 2021 |
177 |
What does this mean for aspiring buyers?
The growing availability of 95% mortgages, is making getting on the housing ladder more realistic for many Brits.
A 95% mortgage means that first-time buyers have a much more affordable deposit to save for. Keep in mind, however, that buyers will still be subject to the usual lender affordability checks.
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Is there any other good news for buyers?
The other good news for buyers is that the UK’s frenzied housing market is finally showing some signs of cooling. Nationwide reports that the average value of a home in the UK fell by 0.5% in July – the first decline in four months.
In addition, the new stamp duty threshold of £250,000 means that buyers can still make significant savings if they are able to complete before the end of October.
Is a 95% mortgage right for me?
It depends on how much you can afford to save and how quickly you want to join the property ladder. If you can only save a small deposit and are in a hurry to buy, a 95% mortgage may be just what you need to make your dream of homeownership a reality.
However, a 95% mortgage has its risks. For example, house price uncertainty means that if you sell your home in the short term, you could end up in negative equity.
According to most experts, the larger the deposit you can put towards your home, the better. Jo Thornhill, mortgages expert at MoneySuperMarket, says: “Try to buy with as big a deposit as you can afford. It will bring your borrowing ratio down and could give you access to lower mortgage rates.”
One other thing to keep in mind is that there is currently a shortage of homes on the market. So, even with a 95% mortgage, you might not be able to get the home you want right away.
In this case, the wisest course of action is to continue saving money. This way, once you find the house you want, you’ll be able to afford a larger deposit. This could help you score a lower interest rate on your mortgage.
