There’s a lot to get your head around if you’re new to mortgages and thinking about moving into your own pad. We get the lowdown on LTV, support schemes, lenders’ rates and fees for first time buyers.
Tired of renting or sponging off Mum and Dad’s hospitality? If so you’re probably considering getting your own place, but how do you know what mortgage to go for?
That question becomes even more important if you don’t have lots of savings to put down as a deposit.
Here’s how you can compare 95% mortgages for first time buyers to land your first home without too much hassle – and without paying over the odds.
Basics of 95% first time buyer mortgage deals
Mortgages are essentially a great big loan used to buy a property; the bigger the loan, the bigger the lender’s risk of losing money.
To mitigate this your lender, which may be a bank or building society, asks for a deposit. In mainstream mortgages a 5% deposit is usually the minimum you can put down.
This means on 95% mortgages your deposit must be equal to 5% of the property’s value. If it was worth £250,000 you would make a down payment of £12,500 – the lender makes up the remaining amount, £237,500.
As the bank is contributing 95% of the money for you to borrow to buy the house – known as 95% loan-to-value or LTV – first time buyer mortgages 95% are considered higher risk agreements.
This denies you the very best rates and bumps up your monthly repayments, but shop around and you can still find a competitive first time mortgage.
Assess your financial situation
Before you become a 95% mortgage first time buyer you must be confident you can make the financial commitment. If you miss payments your new home may be repossessed – so be absolutely sure.
If you are younger and not earning much, will you have a steady enough income to pay off what you borrowed? Think about how much you spend each month and where you can save money; try out our Action Plan, How to buy a house.
When you have worked out whether you’ll have enough cash to make your repayments, it’s time to find out what mortgages are available and make a 95% first time buyer mortgages comparison using our table.
Support schemes for first time buyers
If you have enough to make a deposit and become a mortgage 95% first time buyer, it’s worth also taking a look at initiatives that offer support to those with smaller down payments.
One such scheme allows you to have a family member or relative act as a guarantor. This gives your creditor more reassurance it will get its money back, making it more likely to lend to you and maybe even put forward better rates as a result of the lower risk.
Another programme is the government-backed Help to Buy mortgage scheme which aims to help you if you have little or no savings and can only make a small deposit.
Equity Loans - the government will lend you up to 20% of the house’s value so that, in essence, you can look at mortgages down to 75% LTV
- Mortgage guarantees - the second part of Help to Buy guarantees up to 20% of the property value, encouraging lenders to offer a wider selection of high LTV mortgages and push down their rates
These schemes mean it’s easier to get mortgages without having a lot of savings, helping you get on the property ladder faster.
Keep in mind though that you still need to make the monthly repayments, and you will need to pass affordability checks and have a good credit history to qualify.
Comparing the best 95% mortgage for first time buyers
When you start making mortgage comparisons you will notice that most of those offered are fixed rate. This means you would make the same monthly payments each month for the duration of the initial interest rate period.
This can be handy for you if you are a first time buyer as you know how much you need to pay each time and can budget around it accordingly, although you need to think about how long you’d like the initial rate to last for.
Fixed rates can vary from two to five years. If you opt for a two year rate you may pay less than if you opted for five years but once that ends you might need to look around again to switch your mortgage – by which time the Bank of England base rate could have gone up and you’ll pay more as a result.
If you choose a longer term fixed rate, you’ll pay slightly more but you at least know you aren’t susceptible to increases in general rates. Of course you won’t feel the benefit if rates drop, either.
It’s a matter of how much stability you want and how much of a gamble you are willing to take.
The alternative to fixed rate is a variable rate mortgage. This is when rather than being static, the interest rate can vary depending on what the Bank of England’s base rate is. While this means at times when rates are generally low you might pay less, they can also become more expensive if rates shoot up.
It’s worth bearing in mind that to get the creditor’s best rates, you might be asked to pay an arrangement fee. This can be steep so weigh up whether it’s worth it to get the cheapest initial interest rates.
Some 95% LTV mortgage lenders may charge you for taking out any mortgage with them – even before piling the product fee on top! This is why you need to check and compare what each offers and requires you to pay, in addition to the headline initial interest rate.
Use the overall cost to compare long-term affordability, and compare set up fees and the initial rates to save here and now - remembering to switch if you need to when those rates end!