What is a 95% Mortgage and How Can it Help You?
For some, buying a house can seem like a dream that has very little chance of becoming a reality. The need to make sure that you’re paying your rent and covering all of your other bills so as to protect your credit score can easily get in the way of achieving the dream of home ownership.
One of the biggest problems faced by potential home buyers is the need to have a deposit to get the purchase started. In days gone by, 120% mortgages weren’t unheard of, but following the crash of 2008 banks started to have higher expectations.
Quickly, the need for a deposit equal to 10 – 20% of the value of your new home became the norm. This has left a lot of people struggling to reach their aspiration of home ownership, especially with all of the extra costs that come along with buying a house.
What does a 95% Mortgage Mean?
In short, you will be lending 95% of the value of the house that you are buying, and putting down a deposit of 5% cash. Here’s a break down of how it works
- You find a house with a sale value of £100,000
- The amount that you borrow from the bank totals £95,000
- Your contribution to the house purchase is £5,000
- Legal fees and survey costs are still your responsibility
The reason some people worry about taking out a mortgage with a high percentage of lending compared to the value is that there is a chance the value of your house could go down within a few years. When that happens, you may end up owing the bank more money than your house is worth.
Although something that you should consider when taking out a mortgage, it’s up to you to determine what you think the chances are that the value of the property you buy could go down, and go down by a few thousand pounds at that.
Can I Get a 95% Mortgage?
Although less common than they once were, it is still possible to get a 95% mortgage. There are some things that will want to consider when looking at the option, but it’s worth getting in touch and discussing your options.
You will still need to have a good credit history so that the mortgage company sees that they can trust you to make payment. Also, you’ll need to be able to show them that you have enough money coming in every month to cover the payments you will be making on your mortgage.
The interest rate that you pay may be slightly higher than with a mortgage with a higher cash deposit. This means you will be paying back a little bit more than someone who has a bigger deposit.
This situation will not last forever. Once you’ve spent a few years paying back your mortgage you will have built up enough value, or equity, to be able to get a lower percentage mortgage.
Should I Just Wait to Save a Bigger Deposit?
Spending more time saving money is an option. But think about how long it has already taken for you to scrape together your 5% deposit. It’s no secret that wages are low and are not increasing as fast as prices are in the UK; the longer you want to buy a house, the less your savings are worth.
Also, whilst you are working really hard to get your extra cash into a savings account, you’re probably still paying rent. When you pay rent to your landlord, you’re probably paying a mortgage payment for them. You do need a roof over your head, but paying rent is paying someone else’s mortgage and can be seen as ‘dead’ money.
Taking a mortgage at a value of 95% of your home can come with extra costs, but there are benefits too. You will be able to get on the housing ladder quicker, get out of rented accommodation, and start building up your own equity rather than paying for someone else’s mortgage.
It’s something that you’ll want to think hard about. If you’d like to explore what your mortgage options are, whether it’s 95% deals, re-mortgages, or lending money for a buy to let property, you can get in touch. We can talk you through financials and logistics and help find the best deal for you.