How Do 95% and 90% Mortgages Work?

To buy a property with a 90% or 95% mortgage, you can deposit just 10% or 5%, respectively and borrow the rest. These types of mortgages are commonly referred to as having a 90% or 95% loan-to-value (LTV) ratio, which means the amount you borrow is a percentage of the property’s value.

This mortgage type is attractive to individuals who wish to enter the real estate market but may find saving a larger down payment challenging.

What's Included?

What is a 95% mortgage?

If you get a 95% LTV mortgage, you need to pay a deposit of 5% of the property’s value, and the remaining 95% will be lent to you. To illustrate, if you’re purchasing a property valued at £250,000, you’ll have to pay £12,500 as a deposit (which is 5% of £250,000) and borrow £237,500 (which is 95% of £250,000) as a mortgage.

The advantages and disadvantages of 95% mortgages

A 95% mortgage can be beneficial for buying a property, but the interest rates are typically higher than for a mortgage with a larger deposit. This is because lenders consider it a riskier investment. Additionally, the property value may decline, potentially leaving you with more debt than the property’s worth (negative equity).

If you have a 95% mortgage, remortgage may be more difficult because you will likely only be eligible for a small selection of remortgage options if you have little equity in your home.

⁠What is a 90% mortgage?

To get a 90% LTV mortgage, you need to provide a 10% deposit of the property value and borrow the remaining 90% through a mortgage. For instance, if you plan to purchase a property that costs £250,000, you must pay a deposit of £25,000 (10% of £250,000) and take out a mortgage of £225,000 (90% of £250,000).

The advantages and disadvantages of 90% mortgages

Both 90% and 95% mortgages have similar pros and cons. With a 90% mortgage, you can enter the property market quickly by only saving 10% of the property’s value as a deposit. However, you may encounter higher mortgage rates than those with larger deposits.

Similar to a 95% mortgage, there’s a risk of negative equity if the property’s value decreases in the future, which means you may owe more than the property is worth.

Should you continue to save for a larger deposit?

A bigger deposit when applying for a mortgage provides you with a wider range of options. Lenders usually offer their best rates to those with a larger deposit, resulting in less interest being paid overall. But saving a large amount of money can be challenging, especially if you are renting and have limited extra funds to save each month.

If you believe property prices will increase, you may buy a house earlier than planned to avoid saving up a larger deposit. The decision to continue saving will depend on your situation and when you intend to purchase.

Frequently Asked Questions

1. What is a 95% mortgage?

A 95% mortgage is a loan that covers 95% of the value of a property. The borrower pays the remaining 5% as a deposit. ¹

2. What is a 90% mortgage?

A 90% mortgage is a loan that covers 90% of the value of a property. The borrower pays the remaining 10% as a deposit. ³

3. What is the mortgage guarantee scheme?

The mortgage guarantee scheme is designed to encourage lenders to offer more low-deposit mortgages by providing them with a government guarantee on part of the loan. ²

4. Who is eligible for the mortgage guarantee scheme?

The scheme is open to first-time buyers and home movers who are buying a property in England with a deposit of between 5% and 9%. ²

5. How much can I borrow with a 95% mortgage?

The amount you can borrow with a 95% mortgage depends on your income and credit score, as well as the value of the property you want to buy. ¹

6. How much can I borrow with a 90% mortgage?

The amount you can borrow with a 90% mortgage depends on your income and credit score, as well as the value of the property you want to buy. ³

7. What are the pros and cons of a 95% mortgage?

Pros: You can buy a home with a smaller deposit; Cons: You may have to pay higher interest rates and fees, and you may be more vulnerable to negative equity if house prices fall. ¹

8. What are the pros and cons of a 90% mortgage?

Pros: You can buy a home with a smaller deposit; Cons: You may have to pay higher interest rates and fees, and you may be more vulnerable to negative equity if house prices fall. ³

9. How do I apply for a low-deposit mortgage?

You can apply for a low-deposit mortgage through most high-street banks and building societies, as well as some specialist lenders. ²

10. What are the alternatives to low-deposit mortgages?

Alternatives include shared ownership schemes, Help to Buy equity loans, guarantor mortgages, and family offset mortgages. ²

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