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HomeFirst Time BuyersMortgage with a low deposit

Mortgage with a low deposit

Last updated on 7th November 2023 by Martin Alexander

Saving for a mortgage deposit can be challenging, but you can get a mortgage with just a 5% deposit. Government help, such as the mortgage guarantee scheme, can help you buy a home with a 5% deposit. However, you may not need a scheme, as many lenders offer low-deposit mortgages.

In this guide, we’ll explain how you can buy a house with a small deposit and whether it’s worth doing so.

What is a low-deposit mortgage?

A low-deposit mortgage is one with a deposit of 10% or less. The smallest deposit you can use for a mortgage is 5%, meaning you’d need a 95% mortgage. With a 10% deposit, you’d need a 90% mortgage.

Some lenders offer 95% mortgages, but not all do. Most lenders require applicants to have a 10% deposit to get a mortgage.

It’s possible to get a 100% mortgage without a deposit. However, you’d need a guarantor or qualify for a scheme, such as Right to Buy.

How to get a mortgage with a low deposit

There are several options to get a mortgage with a small deposit. Each option has pros and cons, but you can speak to an advisor to determine your options.

Lenders that offer 95% mortgages

While most lenders prefer 10% deposits, some accept 5% deposits, meaning you can get a 95% mortgage. You’ll have more choice than using schemes such as the mortgage guarantee, so you can shop around for a better rate.

Some lenders that offer 95% mortgages include:

  • HSBC
  • Kensington
  • Nationwide
  • Natwest
  • Santander
  • TSB

If you apply for a 95% mortgage, you’ll pay higher interest rates than usual. Mortgage rates tend to get better with higher deposits of 15% to 20%. You’ll also undergo criteria checks to see if you can repay the mortgage you’ve applied for.

Mortgage guarantee scheme

The government mortgage guarantee scheme allows you to purchase a home with a 5% deposit on properties up to £600,000. It’s only available to buy a main residence, not for second homes or buy-to-let.

The scheme currently runs until the end of December 2023. The scheme works as the government underwrites part of the mortgage, offering lenders security. First-time buyers and home movers can apply, but you must have a 5% deposit minimum and meet the criteria for a mortgage.

It’s important to note that most lenders don’t accept the scheme, so you’ll have little choice of rates.

Right to Buy

Right to Buy is a government scheme that allows council tenants to buy the home they’re renting.

The main advantage of the scheme is receiving a discount on the property, which you can use towards your deposit. If the discount is big enough, you can get a mortgage without a deposit.

Getting a mortgage with a guarantor

Having a guarantor can allow you to get a mortgage by using your guarantor’s home or savings as security. If you fail to repay the mortgage, lenders will use the guarantor’s home or savings as collateral for the loan.

Using a guarantor is very risky, and you’ll need a guarantor willing to take the risk. If your guarantor has savings, it may be safer to take a gifted deposit.

Using a gifted deposit

If you’re struggling to save for a deposit, a family member can help you by gifting you a deposit. Most lenders accept deposit gifts, but it must be clear that the deposit is a gift, not a loan.

The main benefit of using a gifted deposit is that it can be safer than a guarantor. However, your helper will need to take legal advice before giving you money for a deposit.

Family mortgages

Many high street lenders offer family mortgages, allowing first-time buyers to buy a house without a deposit. Instead, lenders will use your family’s savings as security for the mortgage.

Each lender has different terms for how its family mortgages work. Most offer interest on the savings account, but the funds are locked for a set duration of the mortgage.

Advantages and disadvantages of using a small mortgage deposit

Advantages

  • Saving a smaller deposit is easier and less time-consuming
  • You can buy your home sooner rather than waiting
  • There are government-backed schemes for low-deposits
  • Lenders offer 95% mortgages with or without using a scheme

Disadvantages

  • Low-deposit mortgages often have higher rates and fees, which can be expensive
  • Fewer lenders offer 95% mortgages, so your options will be limited
  • If property prices fall, the risk of being in negative equity is higher with smaller deposits, which can make it hard to remortgage
  • Some schemes have certain conditions that you must meet to qualify

How much can I borrow with a 95% mortgage?

The amount you can borrow will depend on your income, not the value of your deposit. Saving for a larger deposit can allow you to buy a home worth more. Most lenders lend three to five times an applicant’s income, regardless of deposit size.

FAQs

The lowest deposit for a mortgage is 5%. This means you’ll need a 95% mortgage, which often comes with higher rates.

Not every lender will accept a 5% deposit. Most lenders have a minimum deposit requirement of 10%.

Help to Buy did allow you to buy a home with a 5% deposit. The only Help to Buy scheme that allowed you to do this was the equity loan. However, the scheme ended in March 2023.

To qualify for a mortgage, you’ll first need a minimum 5% deposit. Then, you’ll need to meet a lender’s criteria, such as an income to repay the mortgage you’ve applied for. Lenders will also carry out a credit check to check your credit history.

It’s best to speak to a mortgage advisor to check your eligibility for a mortgage before applying.

Yes, a smaller deposit will likely mean higher interest rates. Saving for a larger deposit, such as 25%-35%, can unlock the best interest rates.

Yes, you can get a 100% mortgage with no deposit, but only with a guarantor or by using a family mortgage.

You may also qualify for the Right to Buy scheme, which gives you a discount on the property if you’re a council tenant. The discount can then be used for all or part of your deposit.

About the author

Martin Alexander
Senior Mortgage Advisor

Martin is a senior mortgage advisor who has held a CeMAP qualification for over 15 years while completing an MBA in Global Banking and Finance.

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