Is a 95% mortgage right for you?

An ideal choice for first-time buyers, the 95% mortgage is a secured loan backed by a deposit of only 5% of the property’s value. For instance, if you’re on the market for a home priced at £400,000, you’ll require a deposit of £20,000, while the remaining 95% would be derived from the mortgage (covering the remaining £380,000). The 95% mortgage is an excellent choice for those who find it challenging to save more than 5% deposit. It also serves as a gateway to a booming housing market (where house prices increase in value faster than one can save) by offering buyers the opportunity to buy a home as soon as practically possible

A 95% mortgage might hold the ticket to achieving your homeowner dream, but there are several disadvantages to consider. First, it’s important to note that the best mortgage interest rates are offered to those with 35-40% deposit. Therefore, you’re likely to encounter higher interest rates with a 5% deposit only. Additionally, you’ll run the risk of negative equity (or owing more than your home’s worth) given that with a relatively large mortgage, the home’s value may fall below the value of the mortgage. You’re also likely to be faced with higher lending charges as some lenders will charge a fee for a mortgage that’s over 80% of the home’s value. This is usually summed up as a percentage of the total value and is set by the lender.

Are you likely to get approved for a 95% mortgage?

Several factors will play into a lender’s decision to offer you a 95% mortgage. This includes your credit history, as lenders prefer buyers with excellent credit scores. Furthermore, you’ll need to demonstrate that you can afford the mortgage with detailed information about your income, debts and other living expenses.

How soon can you take advantage of the stamp duty extension?

During the early days of the COVID-19 pandemic, many lenders pulled the plug on 95% mortgages. However, in March 2021, the Government announced the 95% mortgage scheme, along with an extension to the Stamp Duty Holiday. This initiative will allow lenders to offer 95% mortgages, backed by a Government guarantee on 80-95% of the mortgage value. The scheme will open for new mortgage applications in April and continue until the end of 2022.

First-time buyers will also benefit from an extension to the temporary stamp duty holiday in England and Northern Ireland. Therefore, until 30 June, the first £500,000 spent on a property will be tax-free, which means you’ll save up to £15,000. After that, the threshold will drop to £250,000 until 30 September, before returning to its normal threshold of £125,000. Nevertheless, it’s good to know that first-time buyers have a separate threshold, set at £300,000, and that will resume after June.

If you’d like to take advantage of a 95% mortgage and stamp duty holiday on a home in Manchester, Sale, Altrincham, Timperley, or Hale, please get in touch The Property Man or browse our current listings.

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