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95% and 100% mortgages

What are 95% and 100% mortgages?

A 95% or 100% mortgage refers to the percentage of the value of the property you’re borrowing to purchase your home.

A 95% mortgage is available for people with a 5% deposit. For most first time buyers, you will usually need to build up a deposit of at least 5% of the value of the property you want to buy.

There are a number of 95% mortgage deals available for first-time buyers but tend to come with higher interest rates than those with lower loan to value (the amount you can borrow against the value of the property). 100% mortgages, however, are less common, and carry a much higher level of risk, as explained below.

What is a 100% mortgage?

With a 100% mortgage, you borrow the entire purchase price of the property and put down no deposit.

The obvious advantage here is that you don’t need to have any savings in place to buy a home. However, lenders are often very reluctant to cater for 100% mortgages due to the high level of risk involved.

What are the risks of 100% mortgages?

The biggest risk of 100% mortgages is falling house prices. If the value of the property decreases you could be in negative equity – owing the bank more than your property is worth.

Being in negative equity can make it very difficult for you to move house or to remortgage onto another deal. For lenders, the risk is that they are unable to recover all the money they’ve lent you if you could no longer afford to make your monthly repayments.

Because of the greater level of risk, interest rates for this type of loan tend to be much higher.

What are my 100% mortgage options?

If you are finding it hard to find a deposit to buy your property, there are potential mortgage products and schemes that may enable you to obtain a 100% mortgage.

These could be ‘family offset’ or ‘guarantor’ mortgages, where family members put up their  savings or property as security to allow you to borrow 100% of a property’s value. You can find out more in our guide to parents and first-time buyers.

What is a 95% mortgage?

With a 95% mortgage, you borrow 95% of the property’s value and use a 5% deposit to pay for the rest. So, for example, on a house valued at £200,000, you could borrow £190,000 using a 95% mortgage, and would need a deposit of £10,000.

The number of 95% mortgages available as a proportion of the whole mortgage market is growing all the time, and there are plenty of options available for people with just a 5% deposit.

The main benefit of this kind of loan is that you only need a relatively small deposit but there are downsides too.

These loans are risky both for you and the lender because the deposit cushion is quite small. If your house dropped in value by more than 5% the mortgage would be worth more than the property, you would then be in negative equity.

And as interest rates on these loans tend to be higher, coupled with borrowing more, your monthly mortgage repayments will be higher than those with bigger deposits, which could have an impact on how much you can borrow and afford to repay.

Use our mortgage borrowing calculator to estimate how much you could borrow.

Are there other 95% mortgage options?

The government offers a number of schemes to help people with 5% deposits get onto the property ladder.

Help to Buy

The Help to Buy equity loan scheme offers buyers a 20% loan to buy a property. The loan is interest-free for the first five years, and from year six a fee of 1.75% is payable on the equity loan, which rises annually by inflation plus 1%.

This allows borrowers with a deposit of just 5% should be able to buy a new build property and only require a mortgage of 75% of their chosen property’s value.

When you come to repay the loan, you don’t repay the amount you initially borrowed, rather the percentage. So, if your house has increased in value, you’ll pay back more than you initially borrowed.

London Help to Buy

Launched in 2016, London Help to Buy offers extra help for first-time buyers and home-movers in the capital. Using London Help to Buy, you can apply for an equity loan of up to 40% of the value of a new-build property, rather than the 20% offered elsewhere in the country.

The loan is available for new homes in Greater London priced up to £600,000. As with the standard Help to Buy scheme, you will need to have a deposit of at least 5% of the property’s value and you won’t be able to let it out or use it as a second home.

Find out more in our guide to Help to Buy mortgages.

Shared ownership

With shared ownership, you part-buy and part-rent a home from a housing association, allowing you to take out a much smaller mortgage than if you were buying the whole property.

Using shared ownership, you purchase a share of between 25% and 75% of a property from a housing association.

Find out more in our guide to shared ownership.

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