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Based on your yearly income,
you may be able to borrow
Most lenders will let you borrow 4.5 times your annual salary so, as long as you have a standard 10% deposit, you should be able to borrow this much.
Depending on your personal circumstances, some lenders may let you borrow 5 times your salary.
Lenders usually cap the amount they lend at 5.5 times your salary, so it’s unlikely you’ll be able to borrow more than this.
Mortgages at 95% Loan to Value
UK residential mortgages are usually available up to 95% LTV as a maximum - that means you need at least a 5% deposit to purchase a property.
A mortgage at 95% Loan to Value will cover 95% of the property purchase price, with Loan to Value often abbreviated to LTV, so a 95 mortgage means a 5% deposit requirement.
Are There Rules Around the Deposit on a 95% LTV Mortgage?
Lenders will all have different criteria about where that 5% deposit can come from. It is usually cash savings or could be equity in your property.
Equity is the amount you own in the property and the difference between the value and how much you owe. Some lenders will allow you to borrow the 5% deposit, but this is usually not permissible since it means taking out more short-term borrowing to qualify for a longer-term 95% LTV mortgage.
You can borrow the 5% deposit from family members or be gifted this from immediate relatives, which is widely accepted.
Deposit sources can include:
- Saving a cash deposit.
- Borrowing from family members.
- Using cash gifted or inherited.
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Can I Use a 95% LTV Mortgage for Any Property Purchase?
Generally, yes, you can apply for a 95% mortgage to purchase a first property, move to a new home, or remortgage your existing property.
First-time buyers often opt for a 95% mortgage since they won't have pre-existing equity to use towards their new borrowing application.
The Help to Buy Scheme is one option, whereby you can apply for an interest-free loan for five years from the government. They will lend up to 20% of the property value, alongside your minimum 5% deposit. You can then offer a 25% deposit and achieve better interest rates at 75% Loan to Value.
You will begin to incur interest after the fifth year, so the loan will either need to be paid back, refinanced, or will carry ongoing interest charges.
However, the larger the deposit you have, the more lenders will consider your application and the lower the interest rates will be.
Can I Use a 95% LTV Mortgage to Refinance or Move Home?
There are all sorts of reasons you might be looking for mortgage finance at 95% Loan to Value:
- If you move home and have 5% equity to put down - for example, if you own a property valued at £200,000 with a £190,000 mortgage and want to purchase a new home, you can use the £10,000 equity as a 5% deposit to get a mortgage for £200,000.
- Remortgaging an existing home loan with a balance equivalent to 95% of the property value is also a 95% mortgage LTV scenario.
What are the Eligibility Criteria for a 95% Mortgage?
Every lender will have its own criteria, but it's very unusual to be approved for a 95% mortgage if you have any adverse credit history.
Affordability is also crucial since the lender needs to see that you can comfortably afford the repayments. They will have little leverage in a repossession scenario if your mortgage balance is at 95% of the property's value, so they will want to see stable income, clear affordability and few risk factors.
What Factors Should I Consider When Choosing a 5% Deposit Mortgage?
Mortgages can vary significantly, and each product will have different pros and cons to think about:
- Interest rates will depend on your lender and the terms around the mortgage you're looking for.
- Fixed-rate periods and the comparable rates for different terms.
- How much variable rates are likely to fluctuate with the Bank of England base rate.
- Whether to choose a repayment mortgage, which costs more per month but pays back the original loan balance, or an interest-only buy to let mortgage.
- Support schemes - 95% mortgages are chosen by first-time buyers, and there are several options to help you purchase your first home. Contact Revolution Finance Brokers if you'd like further information about schemes such as Help to Buy or Shared Ownership.
Is There a Maximum Mortgage Value at 95% LTV?
There isn't any industry-wide cap, but the maximum a lender will offer on your 95% mortgage will depend on their criteria and eligibility assessments, around:
- How much you earn.
- Other debts you have.
- Credit scoring.
lenders will offer up to three or four times your annual income on a 95% LTV. Still, a lot depends on how much you want to borrow and how that stacks up against your income.
What are the Risks of Taking Out a 95% Mortgage?
The most significant disadvantage is that, without a higher deposit, you are likely to pay higher interest rates. The greater the deposit, the lower the risk to the lender and the more favourable the terms.
Another potential problem is negative equity. That means you owe more than your property is worth, so if the property's value falls and you have a 95% mortgage against the previous valuation, it could cause ongoing issues.
Finally, if you have a small deposit and take out a 95% LTV mortgage, you are at risk of having your home repossessed if you fall behind with the repayments.
Potentially, yes - if you have a guarantor who is willing to offset the risk to the lender and guarantee your debt. Without a guarantor, the minimum deposit is usually 5%.
There are lots of ways to save or increase your savings value to add to your deposit. ISAs are one example, as well as cutting back on other outgoings or working on paying back existing debts to improve your credit scoring.
Yes, a 95% LTV mortgage is a relatively high risk, so a lender will need to see that you have a good credit history and are a responsible borrower.
The best way to work out what you can afford is to contact Revolution Brokers. We can help work through your income and expenses, plus other debts, to calculate what level of mortgage you will be eligible for.
Higher lending charges are costs added to a mortgage by some lenders, where they are offering a mortgage of 90% or higher - or you have a deposit of under 10%.
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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.
We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.