A 95% Mortgage is most likely to appeal to a First Time Buyer as it means they will only be required to find a deposit equivalent to 5% of the value of the property that they are trying to purchase.
Don’t get too excited though it’s not all good news. Lenders usually have stricter lending policies when it comes to 95% mortgages and the rates available on these products are generally not as good as those you would get if you were to put down a larger deposit as you would represent more of a risk to the lender.
Below are a list of questions that we are commonly asked about 95% mortgages.
Simply put a 95% Mortgage is a loan equal to 95% of the value of the property that you are trying to purchase.
For Example a First Time Buyer wishes to purchase a property for £100,000 but they are struggling to save a sizeable deposit and they only have £5,000 available. £5,000 is equal to 5% of the properties value meaning they will require a loan of 95%.
This deposit to loan ratio is commonly referred to as LTV or Loan to Value.
It’s a difficult question to answer without first having your financial situation assessed by a professional Mortgage Broker.
If you are really struggling to gather up a decent deposit it may be your only option but you do need to be aware that you are unlikely to secure a really good rate as you will represent a greater risk to the lender.
On the other hand buying your first home can be expensive and there will be lots of hidden costs that you may have failed to take into consideration so even if you have managed to save up more than a 5% deposit you may find that you require liquid cash to satisfy other associated costs such as solicitor fees, furnishing the property and stamp duty to name a few.
Check out our page on the associated costs of buying a new home.
Don’t forget that once your first mortgage deal has expired you can always re-mortgage once you have had time to settle into your new property and take stock of the associated financial implications.
Following the financial crash lenders adopted a much more cautious attitude to mortgages and 95% mortgages became very scarce and hard to come by. However things are slowly starting to change and 95% products are now offered by the majority of main stream lenders in Northern Ireland.
Our Mortgage Brokers have access to a comprehensive panel of lenders and we usually have access to dozens of 95% mortgage products from a range of different Banks and Building Societies which can be made available to our clients.
It’s important to consult a mortgage broker as each lender has different lending criteria so although you may find one that has a 95% product your application could still be rejected as you or perhaps the property you are trying to purchase does not meet the lenders criteria. For example did you know that some main stream lenders will not offer a 95% mortgage on a new build property.
This process of applying and being rejected can be extremely time consuming and disheartening and could even lead to you losing your dream home if the vendor decides to sell to someone else who already has an offer on the table.
Contact one of our mortgage Brokers today and they will be able to assess your situation, they will instantly know which lender is most likely to accept your application.
The majority of lenders have reasonably strict lending criteria for a 95% mortgage due to the increased risk that it represents in the event of a repossession, the government Help to Buy Scheme has however helped to alleviate some of these fears.
Criteria will vary from one Bank or Building Society to another some of the main factors that will be considered include.
You must be able to demonstrate that your monthly earnings are sufficient to cover the repayments after all other committed expenditure is taken into consideration.
A Clean Credit Record
You must have a clean credit record, you can check out your credit rating for free at noddle.co.uk. Your credit score is determined by a number of factors and failure to keep up with your repayments on credit cards and loans will have a negative effect.
New rules implemented by the financial conduct authority require lenders to look at more than just your salary when assessing your eligibility for a 95% mortgage. All of your committed expenditure will be assessed usually by examining 3 months Bank Statements and your application will be “stress tested” for example how would you cope with your repayments if interest rates were to rise.
You are unlikely to secure a really good rate on a 95% mortgage product as you represent a greater risk to the lender this means that your monthly repayments will be greater.
Have you considered what could happen if house prices were to fall ? 5% equity does not leave you with a great safety net. If house prices were to fall you could find yourself in negative equity which would make it virtually impossible to re-mortgage your property when your initial deal comes to an end, this would leave you stuck on your current lenders SVR ( Standard Variable Rate ) paying more than you would if you were able to re-mortgage for a better rate.