Credit Building > How do 95% mortgages work in the UK?

How do 95% mortgages work in the UK?

Wollit Team2 minute read · Updated 30th June 2024

The UK property market has been experiencing a real boom for the past few decades. Because of this, 95% mortgages have become a popular option for people looking to step onto the property ladder but who can’t afford a large deposit.

However, many people still don’t understand how they work, so we put together this guide to demystify them a little bit.

What are 95% mortgages?

A 95% mortgage, also known as a 95% loan-to-value (LTV) mortgage, allows you to borrow up to 95% of a property’s value by putting down only a deposit of 5%. Because of this, they’re also sometimes called “5% mortgages“ or “5% deposit mortgages.“

What are the pros and cons of a 95% mortgage?

A 95% mortgage comes with quite a few advantages. Many of these are aimed at people who are just getting started on the property ladder:

You only need to put down a 5% deposit (hence the name).
Often offer cashback incentives, especially for first-time buyers,
Many also come with fixed-rate deals ranging from 2 to 10 years. This means that for the first 2 to 10 years, your interest rate will be fixed. Even if the Bank of England raises the base interest rates (for example, to fight inflation), you’ll still pay the same amount each month.

But 95% of mortgages also come with a few downsides:

Monthly payments on a 95% mortgage are usually higher than lower LTV mortgages.
There are also fewer deals to choose from, as not every mortgage lender offers a 95% mortgage.
One significant risk is the potential for “negative equity” if the property’s value falls below the mortgage loan amount. If this happens, you might have to repay a mortgage amount higher than the value of your home.
95% of mortgages are also not always available and tend to change depending on new government schemes or incentives. One such scheme, for example, ended in December 2023.
You’ll also need to meet stricter criteria. This includes being a UK resident, aged 18 or over, having a minimum 5% deposit, and intending to purchase a pre-owned property. You’ll also need a pretty good credit score.

What credit score do I need in the UK to qualify for a 95% mortgage?

There is no single answer to this question, as the required credit score tends to vary from lender to lender. But generally, the better the score, the higher your chances.

Here are a few things to remember when it comes to having a credit score that’s considered “good”:

Credit reference agencies like Experian, Equifax, and TransUnion calculate your score differently.
They also have different ranges for what is considered a good credit score. For example, Experian’s range is 881 to 960, TransUnion’s range is 604 to 627, and Equifax’s range is 531 to 670.
While each lender has different criteria, if your credit score falls below the threshold considered “good,” you might want to look into other mortgage options or take some time to improve your credit history so you can get approved.

In short, a 95% mortgage can be a great option if you’re looking to get on the property ladder. But you’ll also need an excellent credit history to qualify for one. The good news is that there are many tools that you can use to build or improve your credit file.

One such tool is Wollit. Wollit is an app that works by reporting a fixed fee monthly subscription as a loan repayment to credit reference agencies.

This helps you build your credit history by showing that you can pay back debt on time and in full, which is one of the main factors that determines your credit score.

And while you’re still renting and waiting for your credit score to become good enough for a 95% mortgage, Wollit can also report your monthly rent payment to Experian, adding another line in your credit report that shows lenders you’re responsible for paying your bills on time.