95% mortgages

If you’re planning to buy a house, you’re most likely thinking about saving up a deposit. For most people, especially first time buyers, raising a big enough deposit is the most difficult part of the buying process.

But if you only have a small deposit, there are still several options available to help you buy the house you want. A low-deposit mortgage, such as a 95% mortgage, is one of them.

Our guide will explain what a 95% mortgage is and the types of mortgage deals that are available to you when you’re buying your home.

What is a 95% mortgage?

A 95% mortgage allows you to borrow 95% of the property’s value and put down a 5% deposit. It’s also known as a 95% loan-to-value (LTV) mortgage.

If you want to buy a home for £200,000 for example and have a deposit of £10,000 (which is 5% of the value), you need a mortgage of £190,000 (or 95% of the value).

These mortgages give you the maximum you can borrow as a percentage of the property’s value because lenders usually want you to have at least a 5% deposit.

If you're able to, it’s usually more beneficial to put down a larger deposit, because it reduces the risk for both you and the lender. A larger deposit also gives you access to more competitive mortgage rates.

But 95% LTV mortgages are really important products. If you have a small deposit, they offer you a chance to get on the property ladder.

Who can get a 5% deposit mortgage?

Anyone buying a home (or remortgaging) can get a 95% mortgage, as long as they meet the lender’s criteria.

Firstly, you need to have a deposit of 5% of the property’s value to put down (or a 5% equity stake in your home).

Secondly, you need to be able to prove to the lender that you can afford the repayments on the mortgage.

First-time buyers often need a 95% mortgage. Rising property prices make it tough to save for a bigger deposit. They also have to set aside money for other home-buying costs.

Find out more about the costs of buying a house.

Home movers sometimes have limited equity in their property and need a 95% mortgage as well.

Their mortgage could account for 95% of their home’s current value, especially if prices in their local area have fallen. Or they might want to move to a more expensive property and need a 95% mortgage to do so.

95% re-mortgages

You don’t have to be buying a new home to get a 95% mortgage.

If you’re coming to the end of a mortgage deal and want to switch to a new product, the lender will look at the equity you have in your property. This is called a product transfer or product switch.

If you have less than 10% equity, you will need to look for deals that are available up to 95% LTV.

Pros and cons of 95% mortgages

Taking out a 95% mortgage can offer some great benefits:

• They help you get on the property ladder now without needing to save a bigger deposit
• A mortgage could work out cheaper than your rent
• Fee-free 95% mortgage deals may be available to first time buyers, which can save you money
• You can minimise your repayments by borrowing over a longer period, such as 30 years.

But there can be drawbacks:

• You need to borrow more, which means higher monthly repayments than those with a bigger deposit
• Mortgage rates are usually higher on 95% deals than other mortgages, so your monthly repayments could be higher
• The criteria is strict on 95% mortgages so you are likely to need a clean credit report
• There are fewer products to choose from. By saving a 10% deposit instead of 5%, you open up access to more competitive mortgages
• You’re at greater risk of negative equity, where your property’s value falls below the amount you owe your lender
• You could have limited remortgage options when you come to the end of your current deal. This depends on your equity level and mortgage availability at the time you need to switch.

What types of 95% mortgages are there?

Standard 95% mortgages

Some lenders, including The Co-operative Bank, offer 95% mortgages as part of their product range.

Each product is different, and every lender sets its own criteria.

Like any mortgage you need to show the lender you can afford to borrow the mortgage amount now, but also if interest rates were to rise.

They will look at your income and your outgoings to assess this and check your credit record to see how you manage your money.

And of course, you will need at least a 5% deposit.

Mortgage Guarantee Scheme

The Mortgage Guarantee scheme was introduced in April 2021 to boost the number of 95% mortgages on offer to first time buyers and home movers.

The government-backed scheme aims to help lenders offer more 95% mortgages. It protects them from potential losses when they lend to borrowers with a small deposit.

Products that come under the Mortgage Guarantee Scheme come with some restrictions:

• They are only available on residential properties up to the value of £600,000
• The property needs to be the buyer’s sole property
• You can’t get the mortgage on a second home or buy-to-let property.

Other than this, mortgages under the scheme work in the same way as any other. The borrower needs at least a 5% deposit and they must be able to show they can afford the mortgage repayments, based on the lender’s criteria.

You don’t need to worry about whether or not a product falls under the Mortgage Guarantee Scheme. Just look for the 95% mortgage that best meets your needs, whether it’s through the scheme or part of a lender’s standard mortgage range.

The Co-operative Bank doesn’t use the Mortgage Guarantee Scheme.

Help to Buy Equity Loan (Wales only)

The Help to Buy Equity Loan 2021-23 is a shared equity scheme for first-time buyers. It was available for those buying a newly built home in Wales and ran until March 2023.

It was also available to new applicants in England until 31 October 2022, but is now only available in Wales.

Help to Buy works by providing you with an interest-free government loan up to 20% of the property’s value to boost your buying power. You need to put down a 5% deposit and the rest is covered by a mortgage.

The loan is interest-free for five years, after which you’re charged monthly interest of 1.75%. This is in addition to your mortgage repayments.

If your property has risen in value, you might be able to increase your mortgage to help you pay off the government loan.

If you sell the property before you’ve repaid the loan you have to repay it from the proceeds of the sale. If you took out a 20% government loan, you still pay back 20% of the sale price whether your property’s value has risen or fallen.

It's worth noting that property price caps apply. For Wales, the cap is £300,000.

Information correct as of October 2022.

Parental support mortgages

Guarantor mortgages let a parent or close family member back your mortgage. They can use their savings or home as security, or promise to pay any missed payments.

By signing for your mortgage, your parent or family member can increase your borrowing power.

With a guarantor, lenders may offer you a 95% mortgage. This is because your guarantor lowers their lending risk.

These products can be complicated. Your family member should get legal advice before becoming a guarantor. This way, they’ll understand their responsibilities.

The Co-operative Bank doesn't currently provide guarantor mortgages. This information is for guidance only.

Where can you get a 95% mortgage?

You can get a 95% mortgage directly from a lender. Alternatively, you can consult a mortgage advisor or broker to help you find one. Brokers can range from solo operators to large firms. However, not every lender offers a 95% mortgage.

Mortgage advisers work with lenders to find the best deals from their options. A broker, on the other hand, searches the whole market to find the right mortgage for you.

If you know which mortgage you want and don’t need advice, some lenders or brokers offer an 'information only' service, also known as 'execution only'.

Find out more about choosing a lender and a mortgage in our first time buyer guide.

How to choose the right 95% mortgage

If you need a 95% mortgage, your choice will be more limited than borrowers with a larger deposit. But you still have a range of options.

A mortgage adviser will start by finding out about your specific needs and circumstances. Then they’ll be able to advise you on which 95% mortgages meet your needs.

If you want to do your own research, there’s lot of information online. You can start by looking at the different types of 95% mortgage available.

Firstly, check if any schemes or initiatives suit your circumstances. If you are a first time buyer looking for a newly built home, for example, the Help to Buy Equity Loan scheme might be worth considering.

If you have a parent or close family member who is able to support you financially, look for parental support or guarantor mortgages.

If you want to borrow a standard mortgage at 95% of the property’s value, you can choose products within or outside the Mortgage Guarantee Scheme.

When comparing deals, always consider the fees as well as the mortgage rate to understand the total cost of any product over the deal period.

And remember that, as well as having a 5% deposit, you must be able to prove you can afford the mortgage amount now, and if interest rates were to rise.

Find out more about choosing a mortgage in our guide to different types of mortgages.

If you can’t pay your mortgage

If you're worried that you won’t be able to pay your mortgage, get in touch with your lender. They will work with you to come up with a repayment plan based on your circumstances.

Find out more

For more information on buying a house, download our First time buyers guide (PDF).

You can also find out more about our products on our mortgages page.