LOW DEPOSIT MORTGAGE: How The Scheme Works in The UK

low deposit mortgage

It’s not easy to get on the housing ladder. House prices have risen considerably since 2023, making it even more difficult for prospective purchasers to save a sufficient deposit.
Low-deposit mortgages, on the other hand, maybe the answer, allowing these purchasers to climb the housing ladder. Discover more about the low deposit mortgage scheme in the UK in this guide.

What is a Low Deposit Mortgage?

Currently, the minimum deposit required to purchase a home is 5%. There was a time when you could easily borrow the entire amount needed to acquire a property, but the financial crash put an end to that, so borrowers must now put down at least some money as a deposit. It’s worth noting that some products are branded as 100 per cent LTV mortgages, but they are only available to individuals with a guarantor or existing customers, and only under certain conditions.

However, very few lenders give mortgages to borrowers with such a low deposit, which is why the government has recently introduced a mortgage guarantee scheme to encourage more lenders to offer these mortgages.

A more frequent ‘low’ deposit is 10%, which means borrowers have many more options if they want to borrow 90% of the property’s value, or LTV.

What is the Government’s Low-deposit Mortgage Scheme in UK?

Most banks and building societies ceased selling 95 percent LTV mortgages as a result of the coronavirus outbreak.

Chancellor Rishi Sunak presented a strategy in the March 2021 Budget to assist homebuyers with a low deposit or limited equity in purchasing a home and climbing the property ladder.

The low-deposit mortgage scheme was implemented in April 2021 with the goal of encouraging lenders to return to the market.

How does the Government’s 95% Mortgage Scheme Work in the UK?

Except for a few major differences, the mortgage guarantee scheme functions similarly to conventional 5% deposit mortgages in the UK.

  • Lenders who use the scheme must pay a fee to the government.
  • The government ensures that lenders will be compensated for a considerable portion of the losses they may experience if they fail to pay your mortgage, your property is repossessed, and there is insufficient money from the sale to settle the loan.
  • Lenders must offer a five-year fixed-rate contract to give borrowers peace of mind.

Can you still get 95% mortgages?

Yes, because the scheme will be in effect until December 2022.

The guarantee is intended to provide mortgage lenders with the confidence to issue 95 percent loan-to-value mortgages, which are considered risky.

Is a 5% deposit sufficient?

Find the house you like and use the mortgage calculator available on most lenders’ websites to determine whether you can afford a 95 percent mortgage.

If you pass the lender’s affordability and credit score tests, you will be authorised for the 95 percent mortgage and will be required to pay a 5% deposit.

However, the mortgage guarantee has some restrictions that apply to mortgages with a 95 percent LTV.

How do I qualify for a mortgage with a 5% (Low) deposit in the UK?

You must fulfill the following criteria in order to be eligible for a 5% deposit mortgage with government backing:

  • You must put down a deposit of between 5% and 9%.
  • Any homebuyer, not only first-time purchasers, can apply for a mortgage.
  • Unlike the shared Help to Buy scheme, the property does not have to be brand new.
  • Second residences and buy-to-let properties are not permitted.
  • Interest-only mortgages are not permitted; the mortgage must be repaid in full.
  • Your home’s purchase price cannot exceed £600,000
  • An individual must obtain a mortgage, not a business.
  • A 95 percent mortgage is a large loan to take on, therefore, you must have a wage or joint income large enough to cover the monthly mortgage instalments; otherwise, your home may be repossessed.
  • Although the laws regarding income multiples are not yet known, lenders may be subject to tight rules prohibiting them from lending more than 4.5 times a borrower’s salary.

If you take up a 5% mortgage with a lender that does not participate in the scheme, you may be subject to other restrictions.

Some lenders, for example, will not allow 5% deposit mortgages on new-build houses or apartments and will not make loans to self-employed customers.

What does ‘LTV’ stand for?

It stands for ‘loan-to-value,’ and it refers to the percentage of the property’s worth that is covered by the mortgage. 95 percent mortgages are sometimes referred to as ’95 percent LTV’.

If your mortgage is £200,000 and your property is worth £250,000, your LTV is 80%.

LTV is a percentage number that represents the amount of your mortgaged property. The remainder is yours, and it is commonly referred to as your equity.

Is it possible for me to apply for a Low-deposit Mortgage in the UK?

Anyone can apply for a low-deposit mortgage, but there is no assurance of acceptance. Each application denial might have a detrimental impact on your credit record, so you shouldn’t just keep applying.

To be qualified for a low-deposit mortgage in the UK, you must meet the lender’s requirements.

Using a mortgage advisor is the greatest approach to maximise your chances of acceptance. They will be able to match you with a mortgage that you are more likely to get approved for.

How much money can I borrow with a 95% mortgage?

The amount you can borrow is determined by your financial situation. As a general rule, you should aim to spend no more than 25% of your pre-tax income on mortgage payments.

To find out how much your monthly payments might be, use a mortgage deposit calculator.

Types of Low-deposit mortgage

You must decide whether to go with a fixed-rate mortgage (usually for two or five years) or a variable-rate mortgage.

#1. Fixed interest rate

A fixed-rate mortgage may be the best option if you want to know that your monthly payments will not vary.

You’ll know exactly how much your monthly payments will be, which will help you budget for your mortgage.

On the other hand, if you want to cancel or modify your product early, such as if you sell your home, move, or make a substantial overpayment, you may incur a high early payback penalty.

#2. Variable interest rate

In the short term, variable-rate mortgages may offer cheaper rates than fixed-rate mortgages, but keep in mind that this is subject to change.

The majority of variable rate mortgages are tracker mortgages, which means they track the bank’s typical variable rate plus or minus a predetermined percentage.

Just because a mortgage has a tracker rate doesn’t mean you may switch at any time – just like fixed-rate mortgages, many will have an initial term, often of two years, and you’ll likely incur an early repayment penalty if you repay or transfer products within that time.

How do I go about applying for one of these mortgages?

The application process for these mortgages is the same as it is for any other normal mortgage, with many of the options available either directly from the lender or through a broker — the choice is yours.

When looking for the best mortgage deal for you, it’s a good idea to consult with a mortgage broker about what type of mortgage is ideal for you.

A broker will be able to tell you if these mortgages are more expensive than others and answer any other questions you may have.

Remember, if you can, aim for a 10% down deposit, as mortgage rates drop dramatically after you reach 90% LTV or lower.

Low Deposit Mortgage for First-time buyers in the UK

As a first-time buyer, you are eligible for a mortgage with a low down payment. In fact, if you’re a first-time buyer, you’re more likely to be offered one of the lowest deposit mortgage programmes.

Many of the 95 percent mortgages issued by lenders are intended for first-time buyers, and the government’s Help to Buy scheme aims to help more people get on the property ladder by making mortgages more accessible to first-time buyers as well.

Help to Buy minimum deposit requirements

Buyers must have at least a 5% deposit, and the property cannot be worth more than £600,000 to qualify for Help to Buy.

The government will match your deposit with an equity loan of up to 20% of the property’s worth (40 percent in London), requiring only a 75% mortgage. For the first five years, borrowers will not be charged any loan repayment fees.

The apparent advantage of Help to Buy is that you can take out a lower mortgage, but it’s also worth noting that you can find 95 percent mortgage deals without using Help to Buy, and you may even be able to get more competitive rates this way.

The Benefits and Drawbacks of Low Deposit Mortgage


  • You’ll be able to buy a home sooner because you won’t have to save for a higher deposit.
  • The tiny deposit may also make things easier for home movers who have little equity in their existing residence.
  • Because of the mortgage guarantee scheme, additional low deposit mortgages will be accessible without the need for you to pay a mortgage indemnity guarantee (MIG). A MIG is a policy that you, the borrower, must pay for, but it protects the lender in the event that you default on your mortgage. They can be costly and may be included in your mortgage payments, raising your expenditures.


  • Potentially higher interest rates and fees because you’re borrowing more money, which increases the risk for the lender – but the mortgage guarantee scheme is supposed to mitigate some of this risk for lenders while keeping costs low.
  • There are fewer options because not all lenders provide low-deposit mortgages.
  • If property prices decrease, you may end up paying down a mortgage that is more expensive than your home (this is called being in negative equity)

Alternatives to a low-deposit mortgage

Low-deposit mortgages are primarily directed at those who are eligible for government programmes such as Shared Ownership, Help to Buy, and the mortgage guarantee scheme.

The only practical alternative to a low-deposit mortgage is to wait a little longer and save a larger deposit. You may have more options, and interest rates and costs may be more competitive.

Reasons to save more for a larger mortgage deposit

While the minimum deposit is 5%, there are numerous benefits to saving more if possible.

#1. Lower monthly payments It may seem apparent, but the larger your mortgage deposit, the smaller your loan, and the lower your monthly payments will be.

#2. Better mortgage offers A greater deposit also makes you less risky for mortgage lenders, who will normally offer you cheaper interest rates as a result. For example, 90 percent mortgages are typically 0.7 percent -1 percent less expensive than 95 percent loans.

#3. Increased chances of acceptance Affordability checks are performed by all lenders to see whether you can afford the mortgage repayments, depending on your income and outgoings. If you simply put down a little deposit, you are more likely to fail these checks since you will have to pay more money on your mortgage each month.

#4. Increased purchasing power Lenders normally provide loans of up to four and a half times your yearly pay, so if your salary is low and you can’t borrow enough, you may need a greater deposit only to cover the property’s value.

#5. Less dangerous If you own a larger portion of your home outright, you are less likely to slip into negative equity, which occurs when you owe more on your mortgage than your home is worth. Being in negative equity can make it difficult to sell a mortgage or switch mortgages.

Low Deposit Mortgage FAQs

What is the lowest deposit for a mortgage?

Currently, the minimum deposit required to purchase a home is 5%. A more frequent ‘low’ deposit is 10% because borrowers have considerably more options if they want to borrow 90% of the property’s value, or LTV.

Is it possible to get a mortgage with a small deposit?

To summarise, acquiring a mortgage with a small deposit is achievable, but the interest rates won’t be the best. Using a larger deposit frequently results in better rates. In addition, various government programmes, such as Help to Buy, provide incentives that allow you to purchase a property with a low down deposit.

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To summarise, acquiring a mortgage with a small deposit is achievable, but the interest rates won't be the best. Using a larger deposit frequently results in better rates. In addition, various government programmes, such as Help to Buy, provide incentives that allow you to purchase a property with a low down deposit.

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