5% Deposit Mortgages
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What is a 5% deposit mortgage?
A 5% deposit mortgage - also known as a 95% mortgage - is a government-backed mortgage scheme that requires a minimum deposit of 5%. So, if you're looking to buy a house worth £300,000, you would need to put down a deposit of £15,000.
The 5% deposit mortgage scheme was introduced by the UK government in 2021. As a mortgage guarantee scheme, it was designed to unlock mortgage deals and help borrowers get on the housing ladder during times of economic uncertainty and rising house prices.
Under the scheme, the government will pay a portion of the lender's losses if your home if repossessed due to missed payments. It doesn't mean they'll pay your mortgage for you -- you're still responsible for the loan and could lose your home if you fall behind on your monthly repayments.
As well as coming with higher rates of interest, 5% deposit mortgages are only available on houses worth up to £600,000 and flats worth up to £300,000. The scheme is due to end in June 2025 but will be reviewed before then for possible extension.
Types of 5% deposit mortgage
Before applying for a 5% mortgage, consider the following types available:
Fixed rate mortgage
Many 5% mortgages start on a fixed rate of interest, typically for a period of two to five years. This can make planning and budgeting much simpler as you settle into your new home. Leaving a fixed rate mortgage early usually incurs an early repayment charge (ERC).
Get your quoteTracked rate mortgage
A tracker rate is a kind of variable rate mortgage that follows the Bank of England's base rate. This can be good value in times of interest rate drops but costly if they're on the rise. You should look out for "collars" and "caps" on this deal, which stop your monthly payments rising or falling by given amounts.
Get your quoteDiscount rate mortgage
Mortgage providers will sometimes offer a discounted introductory rate as part of a 5% mortgage, especially for new customers. Remember to weigh up the savings you'll make against the hassle and cost of switching before you revert to your lender's standard variable rate.
Get your quoteStandard variable rate (SVR) mortgage
Most introductory deals will default to your lender's standard variable rate (SVR) after a certain period. The SVR is set by the provider and tends to be their most expensive rate -- around 2-4% higher than the Bank of England's base rate. It's usually free to switch or pay off your SVR mortgage early.
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First-time buyers vs. second-time buyers
The 5% deposit mortgages scheme isn't exclusive to new homeowners. Here's a breakdown of the differences for new buyers and home movers.
First-time buyer mortgages
5% mortgages are popular with first-time buyers who often don't have a sizeable deposit in place. You'll still need to pass affordability and credit checks, and it's worth remembering that 5% is only the minimum deposit required. A larger deposit will increase your chances of securing any mortgage, including those under the scheme.
You should avoid looking for new build homes, which lenders typically refuse to mortgage at 5%. They consider new builds more likely to go down in value, which would leave you with negative equity and more likely to run into financial difficulty.
Second-time buyer mortgages
As a second-time buyer, you could use the equity you've grown in your current property -- or a mix of equity and cash -- to take out a 95% mortgage for a new home. Bear in mind that you must intend to live in the new property to qualify for the scheme, so the mortgage isn't suitable for investors or those with plans for buy-to-let.
Remember that 5% deposit mortgages are relatively expensive, especially for those with a smaller deposit. The more deposit you can muster, the more you'll stand out from first-time borrowers and unlock lower-interest deals.
5% Mortgage Pros and Cons
Advantages of a 5% mortgage
- Get on the ladder: The key advantage with a 5% deposit mortgage is that you need a much smaller deposit than usual, which means a faster and smoother start on the property ladder for many.
- Find a range of deals: Knowing they're backed by government protection, lenders offer a range of options for new homebuyers with a 5% deposit, such as introductory rates and flexible terms.
- Build equity: The sooner you're on the property ladder, the sooner you can begin to build equity in your home. If property prices rise, you could benefit from the increase and remortgage for a better deal.
- Break the renting cycle: In some cases, a 5% deposit may equal just a few months' saved rent. Depending on the deal, your monthly mortgage payments might also work out cheaper than renting.
Disadvantages of a 5% mortgage
- Smaller loans: The current scheme only applies to houses with a value up to £600,000 and flats with a value up to £300,000. A small deposit and factors such as your credit score might limit your options further.
- Higher rates: Small deposits don't unlock the lender's best rates of interest, and you'll typically pay higher interest to offset the lender's risk. A higher lending charge (HLC) may also kick in with higher loan-to-value (LTV) mortgages.
- Equity risk: If house prices drop during your mortgage, you may end up owing more than your home is worth. This is known as "negative equity" and is more likely with a smaller deposit.
- Risk to your home: As with any mortgage, you risk losing your home if you don't keep up your monthly repayments.
What is LTV and why does it matter?
LTV (or loan-to-value) is the size of the mortgage compared to the value of the property. So, if you're applying for a mortgage with a 5% deposit, your LTV would be 95%. That's quite a high LTV for most mortgage providers, who prefer an LTV of 80% or lower. The ideal LTV is typically under 60%.
The higher your LTV, the harder it is to be accepted for a mortgage. You might also find high LTV deals come with higher rates of interest to offset the lender's risk. If you can bring down your loan-to-value ratio by offering a higher deposit, you're much more likely to be accepted.
Preparing to apply for a 5% deposit mortgage
When applying for a mortgage, you'll need to provide specific information and proof of your income and other circumstances. Use our checklist below to prepare.
Our expert says:
‘’If your personal circumstances allow, a 5% deposit mortgage could be a great way to get on the property ladder sooner than expected. Keep an eye on announcements before June 2025 and remember to check low-deposit options with a range of providers. You might find the purchase price on your dream home looks a little less daunting than before.”
Frequently Asked Questions
Am I eligible for a 5% deposit mortgage?
To apply for any mortgage in the UK, you'll need to be a UK resident over the age of 18 and be able to pass the provider's affordability checks. Even though the scheme is backed by the government, you'll still need to prove your income and be relatively low-risk in the eyes of the mortgage lender.
How much can I borrow with a 5% deposit mortgage?
How much you can borrow depends on your income and credit history. A lender will typically multiply your income by 4 or 4.5 to work out how much they're willing to lend. If you're applying with a partner, lenders will apply the same multiple to your combined income.
So, if you and your partner earn a total of £80,000, you'll be able to apply for mortgages of £320,000 to £360,000. Under the mortgage guarantee scheme, you're limited to borrowing up to £285,000 for a flat and £570,000 for a house, taking into account the 5% deposit.
How long will the mortgage guarantee scheme last?
The initial scheme is due to close in June 2025. According to the government, they'll hold a review towards the end to "determine whether extending the period of eligibility for new mortgages would continue to deliver benefits for prospective home owners."
Whether or not they continue to provide the scheme, providers may still offer 5% deposit mortgages on their own terms, so it's worth keeping an eye on the market for low-deposit options.
Are there other schemes available for first-time buyers?
The 5% deposit mortgage is one of a range of new home-ownership options on the market. The Shared Ownership scheme lets you buy between 25% and 75% of a property and pay rent on the landlord's share, while the Rent to Buy scheme lets you rent your home with the option to buy it later. Both options come with a low or no deposit.
As a first time buyer, it may also be worth looking into initiatives like Help to Build, Right to Buy, Deposit Unlock, and the First Homes scheme.
Can I remortgage to a 95% mortgage?
Not typically, although some providers may allow it. If you already own a property and are looking to remortgage, lenders will usually expect you to have built up more than 5% equity in your home. If your circumstances are unusual, a mortgage broker may be able to help increase your options by dealing with providers on your behalf.
Can I get an interest-only mortgage with a 5% deposit?
No, the 95% mortgage scheme doesn't cover interest-only mortgages. As a "repayment mortgage" you must pay the loan amount, not just the interest.
Can I get a 5% deposit mortgage with a poor credit score?
Lenders understand that first-time buyers may not have built a winning credit score, so you may find 95% mortgage options for a less-than-perfect credit history. Bear in mind that the interest rates will likely be higher than average.
Use our online comparison tool to find suitable options. You could also talk to a mortgage broker, who may have access to low-deposit deals that aren't advertised online.
Is it possible to get a mortgage with no deposit?
Zero deposit mortgages - or 100% mortgages - are sometimes available in the UK but they're quite rare. If you do find a lender offering a no-deposit mortgage, it'll likely come with strict financial constraints and affordability checks. The interest rate and fees will be among the highest on the market, and your chances of falling into negative equity will be higher.
One way to access a zero deposit mortgage is with a guarantor. This person agrees to pay your monthly repayments if you fall behind or default on your loan. Guarantors usually use their own home or savings as security, so it's important to consider carefully before taking out a guarantor mortgage.
External Mortgage Information
For more information on mortgages, homeownership, and financial advice, visit the following trusted resources. These external links provide valuable insights on mortgage options, government-backed schemes, and expert guidance on buying your first home or managing your finances.
