For first-time buyers, moving home, or remortgaging, a 95% LTV mortgage is usually your first port of call. It requires the smallest deposit (just 5%), which means it’s the easiest mortgage to get – but there are some caveats to watch out for.
What is a 95% mortgage?
It’s a mortgage where you borrow 95% of the cost of the property you want to buy. The remaining 5% has to be provided by you. If you’re buying your first home, the 5% will usually be in the form of a deposit – a cold, hard chunk of cash from your savings. If you’re mortgaging or moving home, you can use the equity in your current property as a deposit.
For example, if you want to buy a £300,000 property, you would need to contribute a deposit (or equity) of £15,000 (5%) to hit an LTV of 95%.
Buying your first home with a 95% mortgage
If you’re a first-time buyer, especially in an expensive part of the UK, you might only be able to raise a deposit of 5%. Be warned, though: with an LTV of 95%, you will only have access to mortgages with a relatively high interest rate (around 3% to 4% today). If you can save up a larger deposit, or buy a cheaper property, you will unlock much lower rates of interest as your LTV drops to 90%, 85%, or 80%.
Another option is to use one of the government’s Help To Buy schemes such as Shared Ownership, which lets you buy a 25% share of the property to begin with – and then scale up your ownership over time. Because you’re only buying 25% up-front, you have to raise a smaller mortgage and deposit.
Remortgaging or moving home with a 95% mortgage
If you have a positive equity in your current home – if your home is worth more than what remains of your mortgage – then you can use that equity as a deposit for a remortgage at your current location, or a new mortgage for moving home.
For example, if your current property is valued at £300,000, and you owe £260,000 on your mortgage, you have an equity of £40,000 – which is a pretty big deposit on a 95% LTV mortgage!
You can usually find out your principal mortgage debt by looking at your most recent statement from the lender – or alternatively, phone them up and ask. You can find out the rough value of your home by doing some research online – or ask an estate agent for a valuation.
Read our guide on what mortgage you can afford – and some tricks for how to maximise how much you can borrow, or alternatively reduce your LTV and your monthly repayments.