Low Deposit Mortgages Explained

Buying a home is a significant milestone, but one of the biggest challenges for many buyers is saving for a large deposit.

With traditional mortgages often requiring a deposit of 10–20%, the path to homeownership can feel out of reach. However, low-deposit mortgage schemes offer a solution, allowing buyers to access the property market with smaller upfront payments.

In this article, we’ll explore some of the most popular low-deposit mortgage schemes available, their features, and how they can help you achieve your dream of homeownership.

What Are Low Deposit Mortgages?

A low deposit mortgage allows buyers to secure a loan with a smaller percentage of the property’s value upfront, typically requiring just 5% of the property value.

These schemes are designed to make homeownership more accessible, particularly for first-time buyers or those with limited savings.

Compared to standard mortgages, low deposit options:

• Require less time to save for a deposit.
• Offer a stepping stone for buyers looking to enter or move up the property ladder.

There are various government-backed and private schemes available, each with unique features and benefits. Below, we’ll break down some of the most popular options.

1. The 95% Mortgage Guarantee Scheme

Launched in 2021, the 95% Mortgage Guarantee Scheme is a government-backed initiative aimed at helping buyers with small deposits access the property market.

Key Features

• Deposit Requirement: Only 5% of the property value.
• Eligibility: Available to both first-time buyers and existing homeowners.
• Property Type: Can be used for both new builds and existing properties.
• Government Guarantee: Reduces the lender’s risk by guaranteeing a portion of the loan.

This scheme has been instrumental in providing opportunities for buyers who may have struggled to save larger deposits. It offers a straightforward way to purchase a home with minimal savings.

2. Shared Ownership

The Shared Ownership scheme allows buyers to purchase a share of a property, typically between 25–75% of its value, with the remaining share owned by a housing association. Buyers can gradually increase their ownership share over time, a process known as staircasing.

Key Features

• Lower Deposit: The deposit is based on the share you purchase, making it significantly smaller than for full ownership.
• Ownership Flexibility: Start with a share and increase over time as finances allow.
• Rent Payments: Pay rent on the portion of the property owned by the housing association.
• Eligibility: Available to first-time buyers and those meeting specific income criteria.

Shared Ownership is particularly beneficial in high-cost areas where full homeownership may be unaffordable. However, it’s important to factor in rent payments when assessing affordability.

3. The First Homes Scheme

The First Homes Scheme is a new government initiative designed to help first-time buyers purchase new-build properties at a discounted price. This scheme offers substantial savings, especially in areas with higher property values.

Key Features

• Discounted Price: At least 30% off the property’s market value.
• Designated Areas: Only available in specific locations.
• Future Affordability: The discount remains in place for subsequent sales to eligible buyers.
• Low Deposit Requirement: A minimum 5% deposit based on the discounted price.

This scheme is particularly attractive for buyers in high-cost regions, although its availability is limited to designated areas.

4. Lender-Specific Low Deposit Schemes

In addition to government-backed options, many lenders have developed their own low-deposit schemes. These programs often cater to unique borrower circumstances, such as rental history, family support, or specific property values.

Examples

• Skipton Building Society Track Record Mortgage: Allows renters with a solid payment history to secure a mortgage without a deposit.
• Accord Building Society £5,000 Deposit Mortgage: Offers loans for properties up to £500,000 with just a £5,000 deposit.
• Barclays Family Springboard Mortgage: Enables buyers to purchase without a deposit if a family member contributes savings into a linked account.

Each scheme has specific eligibility criteria, so it’s essential to research and consult with a broker to determine which option aligns with your circumstances.

Pros and Cons of Low Deposit Mortgages

Advantages

• Accessibility: Easier entry into the property market with less savings required.
• Faster Homeownership: Avoid years of saving for a large deposit.
• Flexible Options: A variety of schemes cater to different needs, from first-time buyers to those with non-traditional income streams.

Disadvantages

• Higher Interest Rates: Smaller deposits may result in higher interest rates compared to larger deposits.
• Affordability Risks: Smaller deposits increase the loan-to-value ratio, which can affect monthly repayments.
• Limited Availability: Some schemes are restricted by location or eligibility criteria.

How to Choose the Right Scheme for You

Selecting the best low-deposit mortgage scheme depends on your financial situation, property goals, and eligibility. Here’s how to make an informed decision:

1. Assess Your Budget: Calculate how much deposit you can realistically save and the monthly repayments you can afford.
2. Explore Eligibility: Research schemes based on your circumstances (e.g., first-time buyer, shared ownership).
3. Consult a Broker: Mortgage brokers can provide personalized advice and access to a wide range of schemes.
4. Compare Costs: Factor in all costs, including interest rates, fees, and additional payments like rent for shared ownership.

Conclusion

Low-deposit mortgage schemes are a valuable lifeline for aspiring homeowners, providing opportunities to enter the property market without years of saving.

From the government-backed 95% Mortgage Guarantee Scheme to lender-specific options, there’s a solution for a variety of needs and situations.

By understanding the available options and seeking professional advice, you can find the right path to homeownership.

Start your journey today by exploring these schemes, checking eligibility requirements, and speaking with a mortgage broker to make your dream of owning a home a reality.