Last reviewed on 7th November 2023 by Martin Alexander (Mortgage Advisor)
Saving for a mortgage deposit can be challenging, but you can get a mortgage with just a 5% deposit.
There is government help, such as the mortgage guarantee scheme, that 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 a mortgage with a deposit of 10% or less. The smallest deposit you can get a mortgage with is 5%. If you’re using a 5% deposit, 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, where you won’t need a deposit at all. 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 check the best choice for your circumstances.
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%-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 using 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 who is 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 needs to be clear that the deposit is a gift and 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 low deposit mortgages
- 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
- Low-deposit mortgages often have higher rates and fees, so they 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 and 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 your deposit size.
Low deposit mortgage FAQs
About the author
Martin Alexander
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.