90% and 95% Mortgages: How do they work?

In this guide:

How do 95% and 90% mortgages work?
What is a 95% mortgage?
The advantages and disadvantages of 95% mortgages
What is a 90% mortgage?
The advantages and disadvantages of 90% mortgages
Should you continue to save for a larger deposit?

How do 95% and 90% mortgages work?

With a 95% or 90% mortgage, you only need to put down a deposit of either 5% or 10% of the property value and borrow the remaining 95% or 90%.

These mortgages are often described as having a 95% or 90% LTV. This stands for ‘loan to value’ and refers to the percentage of the property’s value that you’re borrowing.

This type of mortgage often appeals to those who want to get onto the property ladder but would struggle to save a bigger deposit.

What is a 95% mortgage?

When you take out a 95% LTV mortgage, you put down a deposit of 5% of the property value and borrow the remaining 95%.

For example, if you were buying a property valued at £250,000, you’d put down a deposit of £12,500 (5% of £250,000) and you’d take out a mortgage for the remaining £237,500 (95% of £250,000).

The advantages and disadvantages of 95% mortgages

The main advantage of a 95% mortgage is that it can make it easier to buy a property.

However, mortgage rates are usually higher than for a mortgage that requires a bigger deposit. This is because lenders are taking on a higher level of risk.

There’s also the possibility that if property prices fall, you could end up owing more than the property is worth. This is known as ‘negative equity’.

Having a 95% mortgage can also make it harder to remortgage, as you’ll typically only have access to a relatively limited range of remortgage deals if you only have a small proportion of equity in your home.

⁠What is a 90% mortgage?

With a 90% LTV mortgage, you put down a deposit for 10% of the property value and take out a mortgage for the remaining 90%.

For example, if you’re buying a property costing £250,000, you’d put down a deposit of £25,000 (10% of £250,000) and take out a mortgage for the remaining £225,000 (90% of £250,000).

The advantages and disadvantages of 90% mortgages

A 90% mortgage offers similar advantages and disadvantages to that of a 95% mortgage.

For example, a 90% mortgage might make it easier and faster for you to get onto the property ladder, as you’ll only need to save 10% of the property value as a deposit.

However, you’ll typically have to pay higher mortgage rates than someone with a larger deposit.

As with a 95% mortgage there’s also the risk that, if house prices fall in the future, you could end up in a position of negative equity, where you owe more than the property is worth.

Should you continue to save for a larger deposit?

The bigger the deposit you can save, the wider the range of mortgage options you’ll be able to choose from.

Lenders typically reserve their most competitive rates for those with larger deposits, so if you can afford to put down more, you’ll end up paying less interest overall.

However, saving a larger deposit can be easier said than done, especially if you’re currently renting and have limited spare cash to save each month.

You may also decide you want to get on the property ladder sooner rather than later if you think prices are going to rise, because if this does happen, it could make it even harder to build up a deposit.

There’s no right or wrong answer as to whether you should continue to save – it will depend entirely on your individual circumstances and when you want to buy.

You can discuss your options and find out how much you might be able to borrow by speaking to one of our expert mortgage advisers.