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What will 95% mortgages mean for the property market?

The government’s 95% mortgage guarantee scheme is now up and running and several big lenders have already thrown their weight behind the idea.

But how will the re-introduction of 5% deposit mortgages affect the market in general and how does the mortgage guarantee scheme work?

We’ve got all the answers to your questions right here...

How does a 95% mortgage work?

A 95% mortgage covers that portion of your property’s purchase price, with a 5% buyer deposit making up the remaining amount.

So, if you’re buying a property for £180,000 with a 5% deposit, you’d put forward £9,000, with the remaining £171,000 covered by a 95% mortgage.

The number of 95% mortgages available reduced dramatically during 2020 as the pandemic took hold, but the introduction of the government’s 95% mortgage guarantee scheme, they hope, will encourage more lenders to offer those high loan-to-value mortgages.

Under the scheme, the government will act as a guarantor for a portion of the lender’s liability, meaning if a buyer is unable to pay their mortgage and their property is repossessed, the lender will be compensated for their losses.

The mortgage guarantee scheme is open now and will run until December 2022 – although there is no difference between 95% mortgages under the scheme and those outside it to buyers, so be sure to shop around.

Who can apply for a 95% mortgage?

The 95% mortgage guarantee scheme is open to both first-time buyers and existing property owners.

To be eligible for a 5% deposit mortgage under the scheme, however, you must:

• Be buying a main residence and not a buy-to-let or second home

• Be taking on a repayment mortgage and not an interest-only loan

• Be buying a property costing £600,000 or less

• Be able to meet your lender’s affordability and income criteria

What does the current UK property market look like?

The story of the current UK property market is one of low supply versus high demand.

• Buyer enquires rose by 18% in February compared with the same time in 2020

• Buyer enquires in each property on the market rose by 34% year-on-year in February

• Sales are agreed on two of every three properties up for sale currently

With the stamp duty ‘holiday’ extended until June 30, before it’s then tapered off until September 30, Rightmove recently reported the highest level of buyer demand for more than 10 years. The portal also reported its busiest day ever on March 3 when both the stamp duty extension and 95% mortgage guarantee scheme were announced at the spring Budget.

UK average property price

The average price of a property in the UK, according to the Land Registry, was £249,309 in January 2021 – a 7.5% increase on the previous year.

How will the 95% mortgage guarantee scheme affect property prices?

With the property market buoyed by the extension of the stamp duty ‘holiday’, the introduction of more 95% mortgages to the market will only help spark more demand in the first-time buyer section of the market.

This could push property prices up in that part of the market, so first-time buyers who act fastest may find the best value.

Average first-time buyer prices in the UK

Although the 95% mortgages on offer under the guarantee scheme are available to existing homeowners, it’s likely to be predominantly first-time buyers taking advantage of the loans. For many first-timers, saving a deposit can be tough – even just a 5% down payment.

So, we’ve looked at average first-time buyer property prices in some of the major regions of the UK and worked out the amount of money you’d need to put down as your 5% deposit…


Avg FTB property price

5% deposit required

North West



Yorkshire & Humber



West Midlands



East Midlands






Prices from Rightmove data

We’ve also looked at how much you’d need to borrow through a 95% mortgage based on those average first-time buyer prices, and the household income you could need to secure one...


Avg FTB price

95% mortgage

Income needed*

North West




Yorkshire & Humber




West Midlands




East Midlands








Prices from Rightmove data.

* Based on 4.5 x income.

Will house prices go down in 2021?

UK property price predictions for 2021 suggest there will be moderate growth as the pandemic continues to play out.

PricewaterhouseCoopers (PwC) predicted that price growth would be limited at 1% in 2021, but Rightmove suggests an average price rise of 4% is more likely.

Price growth so far in 2021, up until February, suggests that Rightmove’s prediction is looking more likely, with the stamp duty ‘holiday’ extension and 95% mortgage guarantee scheme continuing to fuel the market.


Avg price (Feb 2021)

Annual growth

North West



Yorkshire & Humber



West Midlands



East Midlands






Should I buy a house in 2021?

With the stamp duty ‘holiday’ in place until June 30 and tapering off through to September 30, and interest rates remaining at record lows, it remains a very good time to buy if you can afford to do so.

Stamp duty savings for first-time buyers

First-time buyers will continue to enjoy savings on stamp duty beyond the ‘holiday’ period.

Until June 30, 2021, first-time buyers pay no stamp duty on the first £500,000 of a property’s purchase price.

Then, from June 30, the first-time exemption threshold will revert to £300,000 for properties costing up to £500,000.

Low interest rates

Interest rates remain at a historic low of 0.1%, meaning attractive borrowing options for those with low deposits.

Help to Buy and the 95% mortgage guarantee

The Help to Buy equity loan scheme and the new mortgage guarantee programme mean first-time buyers with 5% deposits have great options to help them get on the property ladder.

Further reading…

Saving for a deposit when you’re a first-time buyer isn’t always easy – but there are steps you can take to help you along, which we’ve outlined in this helpful guide.

And as well as your property’s purchase price, there are a whole host of other costs and fees you’ll need to factor in when buying a property. Our guide explains everything you need to know.

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