How to Get Low Deposit Mortgages

Expert advice for those seeking a 5% deposit / 95% mortgage

Your home may be repossessed if you do not keep up repayments on your mortgage. When The Bank Says No is a mortgage broker, and not a lender.

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Your home may be repossessed if you do not keep up repayments on your mortgage. When The Bank Says No is a mortgage broker, and not a lender.

Finding You The Best Low Deposit Mortgage Deal

Are you struggling to get together a big deposit to buy your dream home? Well, you’re not alone! Saving up for a big mortgage deposit is challenging for many who only have a small deposit, and you might be wondering whether it is possible to buy a home with a 5% deposit mortgage. Thankfully, it is possible to secure a low deposit mortgage (95% LTV mortgage), meaning you'll be able to borrow up to 95% of the property’s value. When the Bank Says No can help you understand the pros and cons of this type of low-deposit mortgage and help you secure one.

What Is a Low Deposit Mortgage?

As the name suggests, a mortgage with a low deposit allows you to put down a small amount of money to secure a house. Typically, this amount of money can be as low as 10% or 5% of the total property value. So, you’ll be borrowing around 90% or 95% of the property’s value.

Although the 10% mortgages are more popular, 95% loan-to-value (LTV) mortgages are possible and provide an opportunity for many people to get on the property ladder.

Here's an example of how a 95 mortgage would work:

Let’s assume you’re buying a house that costs around £400,000 with a 95% mortgage. In that case, you would need to pay only £20,000 as a deposit, and the value of your mortgage debt would be £380,000.

What Do I Need to Apply for a Low-Deposit Mortgage?

Let’s check out what you might need to apply for a low-deposit mortgage.

  1. A Healthy Credit Record

Having a healthy credit record is essential to getting a 95% deposit mortgage. Typically, all lenders check your borrowing history.

Unfortunately, having late or missed payments on your record can lower your chances of securing the loan. Lenders are unlikely to take the risk of loaning you money if they aren’t sure you’ll be able to pay it back.

  1. A Mortgage Application

You need to prepare your mortgage application before applying. It’s essential to go through your application and ensure it’s perfect.

That’s because credit searches that lenders perform will show on your credit report. So, when you get declined by many lenders, it can affect your situation negatively.

  1. Passing the Affordability Test

Lenders run affordability tests to make sure that the client will be able to pay the monthly instalments.

Typically, lenders check how much you earn and how you spend your money. They also check if you have any other debts. Some lenders can dive deeper into your income and expenditure.

You should also expect to be asked various questions about your personal finances.

Get Started with a Low Deposit Mortgages Broker

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What Are the Downsides of the 95% Deposit Mortgage?

The primary advantage of this kind of mortgage is that you only need to pay a small deposit. In this case, you can own a house after paying upfront only 5% of the property value. So, what’s the catch?

Unfortunately, there are some downsides to the 95% deposit mortgage that you need to know about...

  1. Higher Interest Rates

The 95% LTVs are risky for lenders. Therefore, these mortgages come with higher interest rates compared to loans with larger deposits.

  1. Remortgaging Issues

First-time buyers might face trouble getting better deals when remortgaging the home.

  1. Negative Equity

It’s no secret that house prices are super high right now. So, if house prices fall, there’s a greater risk of facing negative equity. That means the mortgage value can be bigger than the property’s value.

  1. Hard to Move

If you end up having negative equity, it’ll be hard to move or sell the house. That’s because the proceeds of the sale won’t be enough to repay the mortgage. Additionally, remortgaging will be hard.

Is a 95% Deposit Mortgage Right For Me?

The 95% LTVs can be a good option for many people, especially those who urgently need to buy a home. However, it’s not the best option for everyone. That’s because it depends on many factors, including the following: Your income How urgently do you need to buy a house The state of the housing market and prices in your area

You also need to understand that this type of mortgage comes at a higher rate compared to the ones with more considerable deposits. So, this mortgage is more expensive than others. Additionally, house prices might fall soon. That can make it hard to remortgage and pay your debt. Generally, if you can afford a higher deposit, you should go for it. That’s because lenders prefer bigger deposits. They consider high deposits low-risk deals as they consider you more likely to meet the monthly mortgage payments, which means you’ll get access to better mortgage deals.

95 LTV Mortgage FAQs

The number of 95% deposit mortgages has been falling over the past years. That’s because many small lenders have withdrawn this type of mortgage. 

Here’s why: if housing prices fall by 5% or more, it’ll wipe out all the equity buyers have in their property. Generally, lenders don’t want customers to be in negative equity.

Therefore, there’s a decline in the number of 95% LTVs, making them somewhat hard to find. However, the market for these mortgages isn’t closed.

With some research, you’ll still be able to find lenders offering them. You can also get help from brokers and mortgage advisors.

Typically, it’ll be hard to get a low-deposit mortgage with bad credit, but it’s still possible. Lenders consider the 95% deposit mortgage high-risk deals as having bad credit can make the deal feel more risky to lenders.

If you have bad credit, you will probably need help from a mortgage broker. Generally, mortgage brokers can help you reach lenders that’ll be okay with bad credit.

However, you need to understand that interest rates will be even higher. Therefore, you should consider your financial situation and whether the monthly payments would be affordable.

More importantly, you should consider all the risks before making your decision. That’s because if you miss a payment, it can cause your credit score to worsen.

Yes. Although the difference between the two mortgages isn’t huge, it’s always better to go for the bigger deposit as this will open up better deals for you.

All in all, the 5% deposit can make a difference in the interest rates. You’ll have access to cheaper deals if you are able to provide a 10% deposit.

The government’s 95% deposit mortgage works almost the same as other deals of the same type. However, there are some differences you need to know about. Let’s check them out.

  1. Lenders must offer a fixed five-year rate deal.
  2. The governments will compensate lenders for a significant percentage of losses caused if you can’t pay your mortgage.
  3. The government will compensate lenders if there’s not enough money from the sale to repay the debt.
  4. Lenders using this scheme must pay a fee to the government.
  5. The scheme is due to end in December 2023.

There’s a misconception that only first-time buyers can use this scheme. However, it doesn’t have to be your first house to apply for this mortgage.

Here are the main criteria you must meet to get the mortgage:

  • The property must be under £600,000.
  • You meet the affordability criteria.
  • You’ll need to pay a 5% to 9% deposit.
  • You should have a steady income and a solid credit score.

95% deposit mortgages can be hard to find. You can get a 95% mortgage directly from a lender. However, not every lender offers this kind of mortgage. This is where the expertise of a mortgage broker, such as one from When the Banks Says No becomes invaluable.

If the 95% deposit mortgage sounds risky to you, there are other alternatives that you may find suitable. Let’s check them out.

  1. First Homes Scheme

As the name suggests, this one is suitable for first-time buyers. Using this scheme, you might be able to buy a home for around 30% to 50% less than its market value.

You can look for new homes in your area that are part of the First Homes Scheme. Then, you can get the property with a discount that can reach half of the property’s purchase price.

  1. Guarantor Mortgage

The guarantor mortgage involves having a friend or a family member guarantee your mortgage repayments. They do so by offering their savings or home as security against the loan.

The guarantee reduces some risks associated with loans, making it a great alternative to 95% deposit mortgages.

  1. Joint Borrower Sole Proprietor (JBSP)

JBSP is a type of mortgage where a first-time buyer can have one of their family members’ income taken into account when applying for a loan. However, the buyer will be the sole owner of the house.

  1. Shared Ownership Schemes

Shared ownership schemes allow you to buy a portion of the house and pay rent on the remaining share. The share can be anything between 10% to 75% of the property’s market value.

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Low-deposit mortgage (95% deposit mortgage) is a good option if you want to buy a home urgently and only have a small deposit. However, 95% of mortgages come at a cost in terms of higher interest rates. Moreover, if the housing prices fall, you could face negative equity. Overall, if you can stretch your deposit to 10%, it’ll be a better option - the higher the deposit, the better mortgage deals you’ll have access to - but when you can’t manage this, a 95% LTV mortgage is still a very real possibility.

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