If you are struggling to build up a home deposit, then why not try the 95% mortgage scheme. The cost difference between 95% and 90% loan-to-value mortgages is shrinking. But is it wise to lock into a 95% mortgage deal or should you keep saving up for a larger deposit?
New data from Moneyfacts shows the gap between rates charged for two-year fixed 95% and 90% loan-to-value mortgages is falling, and is now at its narrowest since February 2013. Mortgage rates have become increasingly low, and with so many to choose from, now is definetly the time to buy.
This is despite borrowers with the smallest deposits often being seen as more risky and recent reports suggesting uncertainties relating to the economy and Brexit are having an impact on the housing market. Currently in the market is a mortgage price war to attract first-time buyers with deposit as low as 5%, providers are minimising their rates to The narrowing rate gap has been driven by “healthy competition” by providers looking to attract people with a 5% deposit.
The mortgage rate gap on 95% and 90% two-year fixed-rate mortgages was 0.65% in February 2019, down from 0.77% in January 2017, according to the latest Moneyfacts data. This is both because 95% mortgages are getting cheaper and 90% mortgages are growing more expensive. The average mortgage rate for 95% loan to value mortgages fell by 0.95% to 3.3% from October 2017 until today, while 90% loan to value mortgages rose 0.03% to 2.65% over the same period. Generally speaking, the higher the loan to value and therefore the smaller your deposit, the higher your interest rate will be. With a minimal deposit, the lender faces a greater risk if you default on your mortgage.
The counter-trend towards cheaper 95% deals may be explained by providers trying to compete in the first-time buyer market, to try and secure more loans from these customers. This is fantastic news for potential first-time buyers who are looking to find their first step onto the housing ladder.
Top Ten 95% mortgages for first time buyers
|Maximum LTV||Initial Rate||Subsequent Rate (SVR)||Overall Cost for Comparison|
|Monmouthshire||95%||2.54% fixed for 2 years||5.24% Variable||4.9% APRC|
|Newcastle Building Society||95%||5.54% Unit||5.99% Variable||5.1% APRC|
|Lloyds Bank||95%||2.65% fixed until 31 July 2021||4.24% Variable||4.0% APRC|
|Barclays||95%||2.75% fixed until 30 April 2022||3.45% Variable||3.2% APRC|
|HSBC||95%||2.89% fixed until 31 July 2021||4.19% Variable||4.0% APRC|
|Halifax||95%||2.93% fixed until 31 May 2021||4.24% Variable||4.2% APRC|
|Post Office Money||95%||2.98% fixed until 31 May 2021||4.74% Variable||4.5% APRC|
|NatWest||95%||3.08% fixed until 30 June 2021||4.34% Variable||4.2% APRC|
|Halifax||95%||3.09% fixed until 31 Jul 2021||4.24% Variable||4.1% APRC|
|Lloyds Bank||95%||3.09% fixed until 21 Jul 2024||4.24% Variable||3.7% APRC|