95% mortgages: How do 95% mortgages actually work?

The 95 percent mortgage has been available to both first-time buyers and home movers. But Britain’s largest mortgage lender has now removed all its 95 percent mortgages from its product offerings. But what is a 95 percent mortgage and how exactly do they work?

Nationwide Building Society, the UK’s largest mortgage lender, pulled all of its 90 percent and 95 percent loan-to-value (LTV) products from the property market this week.

Nationwide introduced new limits on home loans over fears the coronavirus crisis could cause house prices to fall, leaving owners in negative equity.

This move left many borrowers looking for a mortgage with a high LTV struggling to find a competitive deal.

Now the mortgage lender is asking first-time buyers to triple their deposit to 15 percent of the value of their home.


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Nationwide said the move was in response to “these unprecedented times and an uncertain mortgage market”.

According to Halifax, the average first-time buyer paid £231,455 for a home last year, meaning they would need £34,718 to secure a mortgage with Nationwide.

Buyers with larger savings will have a range of deals to choose from.

The number of 85 perent and 90 percent mortgages has risen since the housing market reopened last month, according to recent figures.

Henry Jordan, director of mortgages at the Nationwide, said the outlook for the mortgage market and house prices remained uncertain.

He said: “As a responsible lender we must factor this uncertainty into our lending assessments, which is why we have taken the decision to reduce our maximum LTV for new business.

“We need to ensure our members can afford their repayments, while doing what we can to protect them from falling into negative equity.”

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What is a 95 percent mortgage?

A 95 percent mortgage is a loan for up to 95 percent of a property’s price.

The borrower puts down the remaining five percent as a deposit covering the rest of the house price.

For instance, if you buy a house worth £500,000 with a 95 percent mortgage, you would put down £25,000 of your own money as the deposit and borrow the remaining £475,000.

How much could you borrow for a 95 percent mortgage?

Theoretically, you are able to borrow up to five times your salary, or combined salary, if you are buying with someone else, with a 95 percent mortgage.

For instance, if you are buying a home worth £500,000 and you had saved a five percent deposit of £25,000, you would need a salary or combined salary of at least £95,000 to borrow the remaining £475,000.

However, this is likely to vary depending on your lender.

In May, there were just 35 fixed-rate 90 percent LTV mortgages on the market, which was down from 431 before the coronavirus lockdown was implemented.

In terms of 95 percent mortgages, there were just 37 available in May, including those from Nationwide, which was down from 411 two months previously.

There are still a few banks and building societies offering 95 percent LTV mortgages, but property experts have said they do not expect them to remain on offer for much longer.

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