First-time buyers: Could you benefit from the 5% deposit Mortgage Guarantee Scheme?

For many first-time buyers, saving a deposit is the biggest early hurdle. House prices can rise faster than household budgets, and even when you’re saving hard, reaching a traditional 10% deposit may take longer than expected.

The Mortgage Guarantee Scheme was introduced to help more people buy with a smaller deposit by encouraging lenders to offer 95% loan-to-value (LTV) mortgages.

This guide explains what the scheme is, how it works in practice, and the key considerations that can affect whether a 5% deposit mortgage is the right move for you.

Why a smaller deposit can help (and why it matters)

A deposit is more than just a way to reduce the loan amount. It also affects the loan-to-value (LTV) ratio—how much you’re borrowing compared with the property’s value.

In general, a higher deposit typically means a lower LTV, which can make it easier to access mortgage products and may reduce the overall cost of borrowing.

So while a 5% deposit can make buying possible sooner, it’s important to look at the full picture: monthly repayments, total interest, and how your affordability holds up over time.

What is the 5% deposit Mortgage Guarantee Scheme?

The Mortgage Guarantee Scheme is a government-backed initiative designed to help lenders offer mortgages with a 5% deposit (i.e., 95% LTV mortgages).

In broad terms, the scheme involves a lender guarantee that supports the availability of 95% LTV mortgages.

It’s also worth noting that the scheme is not limited to first-time buyers—eligibility can depend on the lender’s criteria and the details of the property and mortgage.

Important: The scheme does not mean you will automatically be accepted for a mortgage. Lenders will still assess your application.

How much deposit could you need?

The deposit required depends on the purchase price.

For example, if a property costs around £280,000, a 5% deposit would be roughly £14,000 (before considering any additional costs such as fees, surveys, and moving expenses).

Your local market and the specific property you’re considering will make a significant difference, so it’s usually best to model the numbers using the price you’re targeting.

Key considerations before choosing a 5% deposit mortgage

A 5% deposit mortgage can be a helpful route onto the property ladder, but it isn’t automatically the best option. The scheme doesn’t remove the need for lenders to assess your situation.

1) Does a smaller deposit make financial sense for you?

A 5% deposit reduces the amount you need to save upfront, but it also increases the size of the mortgage you take on.

Because mortgage pricing is often influenced by LTV, a smaller deposit can mean you’re more likely to fall into higher LTV bands. That can affect the interest rate and therefore the total cost of the mortgage.

A useful way to think about it is:

• Short-term benefit: you may buy sooner.
• Potential long-term cost: higher borrowing may increase interest paid over the life of the mortgage.

If you’re able to save more, it may still be worth comparing options—sometimes a slightly larger deposit can improve affordability or reduce the overall cost.

2) Will the lender accept your application?

The scheme supports lenders, but it doesn’t guarantee approval.

Lenders will still review factors such as:

• affordability based on your income and outgoings
• credit history and any existing debts
• employment status and stability of income
• details of the property and the mortgage structure

Even if you meet the scheme’s general concept (95% LTV), the final decision depends on the lender’s assessment.

3) Can you comfortably afford the repayments?

Affordability isn’t just about whether you can meet payments today—it’s about whether the mortgage fits your budget with some resilience.

Mortgage repayments can be affected by:

• the interest rate you’re offered
• whether the mortgage is fixed, variable, or tracker
• changes in your personal circumstances (for example, childcare costs, commuting, or other commitments)

A practical approach is to review your budget and consider what would happen if your spending increases or your income reduces.

4) What if interest rates rise?

Mortgage payments can change—particularly on variable-rate products.

If you’re considering a mortgage where the rate could rise, it’s sensible to stress-test your finances. Ask yourself whether you could still make payments if rates increased.

Some borrowers choose a fixed-rate period to reduce uncertainty, because repayments are set for that term. However, it’s still important to plan for what happens when the fixed period ends.

Is the scheme right for every first-time buyer?

Not necessarily.

A 5% deposit mortgage may suit you if:

• you’re close to buying but a larger deposit would delay your purchase by years
• you can afford the repayments comfortably based on your current budget
• you understand the implications of a higher LTV

It may be less suitable if:

• your budget is tight and you have limited flexibility for unexpected costs
• you’re relying on future income changes that aren’t guaranteed
• you could save a bit more without stretching yourself too far

Other costs to remember when buying with a smaller deposit

Even if your deposit is lower, buying still involves costs that need planning for, such as:

• legal fees and conveyancing
• surveys and valuation-related costs
• mortgage fees (where applicable)
• moving costs and immediate home setup

A smaller deposit can help with the upfront hurdle, but it doesn’t remove the need for a realistic cash buffer.

General information only

This guide is for general information and does not constitute advice. Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.