95% Loan to Value (LTV) mortgages are a type of home loan that offers borrowers the chance to borrow up to 95% of the purchase price of their new property. This can be beneficial for borrowers who do not have the funds available to make a large down payment on their mortgage and need additional borrowing in order to purchase their desired property.

What will a mortgage lender request from me?

In most cases, lenders prefer borrowers to have a larger deposit, as this can help reduce the risk of them not being able to meet their mortgage repayments. However, with 95% LTV mortgages, lenders are still willing to provide a loan even if the borrower has only a very small deposit available.

In order to be eligible for a 95% LTV mortgage, borrowers will need to demonstrate that they have a strong credit history and the ability to make their monthly payments. They may also be expected to provide additional documentation such as bank statements, proof of income, and other financial records. It is important for potential borrowers to bear in mind that they may need to pay higher interest rates on 95% loan to value mortgages due to the increased risk associated with the loan.

To ensure that borrowers are not taking on more than they can manage, lenders will typically require them to prove their income and ability to manage their mortgage payments. This involves an affordability assessment which looks at factors such as income and expenditure to determine how much a borrower can realistically afford to repay each month.

 Mortgage guarantee scheme

A government-backed mortgage scheme was available to first time buyers which ended in December 2022, this government guarantee scheme allowed buyers to purchase their own home with a 5% deposit, the property value had to be less than £600,000 for you to be applicable for the government's mortgage guarantee scheme.

Advantages and disadvantages of a 95% Mortgage

95% mortgages come with advantages and disadvantages. If you decide to opt for a 95% mortgage you should consider all these factors.

The main benefits of a 95% mortgage are:-

• Getting on the housing ladder sooner - this is one of the main advantages, with a smaller deposit you can secure your property sooner. Homeownership is the most important aspect for a lot of people.
• Cheaper than renting - even though 95% mortgages are higher interest rates they can still be cheaper than renting.

There are some disadvantages of 95% mortgages however for most people the positives outweigh the negatives. Here are some aspects you may want to take into consideration:-

• Higher interest rates - these mortgages typically are higher than lower LTV mortgages which means your monthly payments will be higher
• Negative equity- there is a risk of negative equity. Negative equity is when your property is worth less than your mortgage. This happens when property prices fall.   

Should you continue to save for a bigger deposit?

Having a smaller deposit limits the mortgage rates available to you, the bigger your deposit, the better the outcome as this opens you up to a wider range of mortgage deals. These deals are typically at a lower interest rate.

If you are paying rent you may want to get on the property ladder as soon as possible, you may feel like you're wasting money paying rent therefore saving for a bigger deposit isn't preferred. Instead of paying rent to somebody else, you will be contributing your own asset. House prices can also increase and any equity gained will be yours to use if you sell your property at that time.

Having a bigger deposit is preferable to lenders as you will become less of a risk. Lenders' credit scoring system can also be determined by your deposit therefore sometimes a higher deposit can be the difference between an accept or decline.

It's important to consider all options available before you decide to save for a bigger deposit. Ultimately, the decision is with you and your circumstances.

Which mortgage deals are available to me?

Overall, 95% loan to value mortgages offer borrowers the chance to borrow up to 95% of the purchase price of their desired property, even if they don't have a large deposit saved. This will help first time buyers get on the property ladder sooner.

However, it is important for potential borrowers to bear in mind that they may need to pay a higher interest rate on these types of mortgages and will have to meet certain requirements to be eligible. The loan to value ratio available to you will depend on your current personal circumstances and the amount of deposit you have.

We will find the best mortgage deal for you when you are looking for a repayment mortgage. If you are looking for an interest only mortgage for a buy to let property then the 95% LTV option isn't available to you as the lenders have a minimum deposit of 25%.

It is also important that they are aware of the affordability assessment that lenders require to ensure that they can afford their mortgage payments before taking out a loan.

This article has provided an overview of 95% mortgages and the requirements that come with them. Potential borrowers should use this information to help them decide if a 95% mortgage is the right option for them.

Many major lenders offer 95% mortgages to prospective buyers looking to buy any residential properties on the housing market, as long as the property fits with their standard criteria in order for them to lend. More lenders have this option available which means that you will have more mortgage products offered to you.

By understanding their eligibility, potential borrowers can ensure that they are making an informed decision about their home loan and make sure that they have considered all of their options before signing on the dotted line.

If you are unsure whether you are eligible for this LTV ratio then speak to your local mortgage broker who will discuss this with you and find a competitive deal for you.

If you do not keep up with your repayments on your mortgage your home may be repossessed.

If you are interested in a 95% LTV mortgage, contact us today at [email protected] or call us on 0151 662 0188