5 mortgages (A brief guide)
In this brief blog, we are going to talk about 5 mortgages, what 5 mortgages are and how to get a 5 mortgage.
5 mortgages will likely refer to mortgages with a loan to value of 95 LTV and requiring a mortgage deposit of 5%. These mortgages are very common today but whether you can get a mortgage offer for a 5 mortgage will depend heavily on your mortgage deposit, the property value, your credit score and the mortgage lenders eligibility criteria.
How will a mortgage lender assess you for a 5 mortgage
To get a 5 mortgage, the mortgage lender will first want to see that you have a mortgage deposit of 5%.
Example on a £100,000 home you will need £5,000 as a mortgage deposit for a 5 mortgage.
Once the mortgage lender is satisfied you have the mortgage deposit they will then perform a soft credit check on your credit profile to give you an agreement in principle.
This is an indication that they are willing to lend to you on a 95 mortgage but this agreement in principle could very well be declined after your property valuation which is the next step.
Mortgage lenders have it within their rights to withdraw a mortgage offer at any time before completion.
This means if they find anything wrong with your 5 mortgage application then they could withdraw the mortgage offer.
The mortgage lender will usually perform a property survey and mortgage valuation at your cost and then analyse your financial information to be sure you make the necessary income to qualify for the mortgage. This is done in order to ascertain the value of your home is in line with what you have told the mortgage lender and the mortgage lender is confident that if they had to repossess your property due to a mortgage default they will be able to recoup the mortgage by selling it.
If everything looks fine then the mortgage lender will produce a mortgage offer for your 5 mortgage.
Alternatives to 5 mortgages
If you can’t save up the 5% mortgage deposit needed to make you eligible for a 5 mortgage then you may be able to access a range of 100% LTV mortgages.
They are a certain type of mortgage known as a family springboard mortgage, they include mortgages from lenders such as the Barclays family springboard mortgage, the Lloyds lend a hand mortgage or the post office family link mortgage.
How to get a 5 mortgage
You can access a range of 5 mortgages if you have a 5% mortgage deposit but that might be too much for you to save.
But don’t be too worried, the governments here to help you with its home buying government schemes which can either reduce the total price of your home purchase or offer you money or an equity loan towards your mortgage deposit.
The government schemes you can use for a 5 mortgage include:
- Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy- allows you to buy your home at a discount price.
- Preserved right to buy– same as above.
- Right to acquire- same as above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich the local councils provide the Norwich home options scheme.
Where to get a 5 mortgage
To get a 5 mortgage you can either go directly to a mortgage lender or a mortgage broker.
If you are considering getting a 5 mortgage then using a mortgage broker may be a good choice as mortgage brokers usually have access to many more products than any specific mortgage lender.
Mortgage brokers will also usually have access to specific deals from mortgage lenders as well as experience on which mortgage lenders will be more likely to accept your case. This will help you avoid getting rejected on a mortgage application and having to build credit due to the damage a rejection might do to your credit score.
If you have bad credit or are self-employed then specialist mortgage brokers such as bad credit mortgage brokers or self-employed mortgage brokers may be useful.
Can you get a 5 mortgage with bad credit
Getting a 5 mortgage with bad credit may be possible but most mortgage lenders will expect you to have a good enough credit score and are not currently bankrupt.
If you are bankrupt then you may need to wait for 12 months after you have been discharged from being bankrupt to get a 5 mortgage
Bad credit may include:
- A CCJ
- An IVA
- A debt management plan
- A default
- A bankruptcy
- A home repossession
- A mortgage default
- Missed credit repayments
- Late credit repayments
What type of 5 mortgages can you get
You can get a variety of 5 mortgages. This include:
Fixed-rate 5 mortgages:
With these 5 mortgages, the rates are fixed for a period of 2, 3 or 5 years and provides you certainty over your mortgage term.
Variable-rate 5 mortgages:
You can access a host of variable rate 5 mortgages through a mortgage lender and these 5 mortgages will have a variable rate which can be increased or decreased at any time by the mortgage lender.
Tracker 5 mortgages:
You can access a host of tracker 5 mortgages from most mortgage lenders. These 5 mortgages will usually track the bank of England’s rate and will move in line with it, although it may not be the exact rate but rather a rate which will increase by the same point or increase by the same point as the bank of England rate.
5 ltv Remortgages:
You can access a host of remortgage options for a 95 ltv remortgage( aka a 5 mortgage).
5 ltv buy to let mortgages:
Some buy to let mortgage lenders have a minimum amount they will lend but you may be able to get a 95 ltv buy to let mortgage with some specialist buy to let mortgage lenders. A buy to let mortgage broker will be able to assist you in this regard.
What documents will you need for a 5 mortgage
For a 5 mortgage, you will need the same documents as any other mortgage.
- Your bank statements for the past 3 months
- Your payslips for the past 3 months
- Your tax returns
- Your utility bills in your current home
- Your driver’s license
- Your passport
- Your contract if you are a contractor
- An accountants certificate for mortgage if you are self-employed.
In this brief guide we discussed 5 mortgages, please let us know if you have any questions or comments.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.