A Guide to 95% Mortgages: The Government’s Latest Scheme for Homeowners

30th April 2021

In the most recent budget, the government announced the 5% deposit mortgages scheme – a type of mortgage that allows buyers to borrow 95% of the property price from providers, providing that they have a 5% deposit for their new home. The Chancellor, Rishi Sunak, has introduced the scheme to mortgage lenders as public finances have faced several challenges during the coronavirus pandemic. As such, the government-backed scheme aids affordable home ownership, helping people to get onto the property ladder, during a time when many have struggled financially due to the coronavirus outbreak. This has been described as an attempt to turn ‘Generation Rent’ into ‘Generation Buy’.


In this blog, we’ll explain what a 95% mortgage is, the eligibility criteria for this mortgage product and how much you can borrow for this type of mortgage.


If you’re ready to take the next step by either seeking first-time buyer mortgage advice and getting onto the property ladder for the first time, or by selling your home and purchasing a new property, get in touch with your local JonSimon Estate Agents branch today at Radcliffe, Ramsbottom or Burnley, for more information about how we can help you to secure your dream home and navigate the housing market.


What is a 95% mortgage?

A 95% mortgage, also known as a 5% deposit mortgage or a 95% Loan to Value (LTV) mortgage, allows you to borrow 95% of the property price. That means you’ll need a 5% mortgage deposit to make up the rest of the purchase price yourself. You may also hear these loans named ‘5% mortgages’ but this term is incorrect, as it suggests you need a 95% deposit. This mortgage does require customers to fix their mortgage for at least five years, so if you have to leave early, you will have to pay early repayment charges. The scheme will run until December 2022.


Low-deposit mortgages were limited during the pandemic, partly because lenders were facing a demand for mortgages due to the stamp duty holiday. As well as this, these types of mortgages are often seen as risky by banks, building societies and other lenders. This is because they are more likely to be negatively impacted by changes in property prices. As such, homeowners then have more debt, because of their loan, than their home is worth. However, under the scheme, the government have offered to take on some of this risk, making these mortgages a more attractive prospect for lenders to now offer. It is therefore lenders that should see a difference under this scheme. For those purchasing a property, there will be no practical difference. For example, monthly payments will operate in the same way.


This is not solely a first-time buyer mortgage or only available for new-build properties, unlike the Help to Buy Mortgage Guarantee Scheme. Any property up to the limit of £600,000 will be eligible. According to Rightmove, at the time of the announcement, 86% of homes on the property market were, therefore, eligible. If you’re looking to buy a new-build home but are unable to borrow enough money, you may want to consider a Help to Buy equity loan. This government loan allows you to borrow a minimum of 5% and up to 20% of the purchase price of a new-build property.


Can I get a 5% deposit loan?

Any buyer, whether they are a first-time buyer, a home mover or a previous homeowner, can get one of these mortgages, providing that they meet the eligibility criteria during the mortgage application process. The criteria may differ slightly across the mortgage market but there are some factors that must be met, for all lenders:

– This loan must be used for your main residential home in the UK – it cannot be used for a buy-to-let property or a second home. You will need a different type of mortgage for these.

– The deposit you have must be between 5% and 9% of the property’s purchase price.

– The property value must be under £600,000 – this is a limit set by the government, that all lenders must abide by.

– You cannot apply for an interest-only mortgage and, instead, you must apply for a capital repayment mortgage.


As with any standard mortgage, you will have to meet the general eligibility criteria set by the lender in order to be granted a mortgage. This usually involves providing information regarding the source of your deposit, to show that you are a legitimate, committed buyer, and information about your annual salary – some mortgage products have a combined gross income requirement if you’re buying a property with someone else. As well as this, you will have to show any regular outgoing payments, such as credit card bills. It also helps if you have an excellent credit history – lenders will look at a credit report to assess whether your credit score makes you a reliable borrower to make monthly payments and repay your mortgage.


You may find it useful to speak to a mortgage broker before deciding on a suitable mortgage deal. These finance experts can suggest mortgage products that are options for you, based on your personal circumstances and financial situation.


How much could I borrow?

You can usually borrow up to around fives times your salary, or your combined salary if you’re buying a property with another person. As an example, if you have saved a 5% deposit for a £250,000 property, you’d need a salary – or a combined salary – of at least £50,000 to borrow the remaining amount of the property purchase price. However, the amount you can borrow will vary from lender to lender and depending on your own individual circumstances. There are calculators available in order to find out how much you can borrow with a 5% deposit mortgage.


When assessing your affordability, it’s important to consider the additional costs that are involved with purchasing a property. You should assess the likes of living costs, the repayment amount per month including the different mortgage interest rates, any relevant insurance products that you would like to buy, solicitor fees and stamp duty. You should also remember that whilst this may seem like a cheaper mortgage, your monthly repayments will be greater, the less money you have saved for a deposit. It is therefore in your best interest to save as much as possible for a deposit.


Ready to get on the housing ladder or buy a new property? Get in touch with JonSimon today

Whether you’re a first-time buyer or you’re looking to sell your home and move into a new property, our estate agents at JonSimon can guide you through the process, with expert advice and a personal service. Get in touch with your nearest branch, in Radcliffe, Ramsbottom or Burnley, to find out more about how we can help you secure your dream property, using a 95% mortgage or any other mortgage product.

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