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Government Schemes for 5% Deposit Mortgages

No impact on credit score

Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: July 8, 2021

Getting a mortgage with just 5% deposit to put down can be difficult. Most lenders consider it too risky, and this is more the case than ever in post-coronavirus Britain; but that isn’t to say you should give up on your homeownership plans. There are several government schemes that offer a mortgage lifeline to customers with 5% deposit, and a range of alternative options that could help you get onto the property ladder without them.

In this guide, we’ll explore the government schemes that can help you get a 5% deposit mortgages, flag up the alternatives and tell you where to get the right advice about them.

Which government schemes can help you get a 5% deposit mortgage?

In this section, we’re going to cover the following government schemes and outline why people typically choose them when they only have 5% deposit to put down…

Why choose the mortgage guarantee scheme?

The mortgage guarantee scheme can help you get onto the property ladder with less than 10% deposit. Through this initiative, the government is enabling lenders to offer higher loan-to-value (LTV) ratios by ‘guaranteeing’ a portion of all loans offered under it.

At the time of writing, around a dozen of the UK’s leading mortgage lenders are offering mortgages under the guarantee scheme and assessing applications in line with their general eligibility criteria. Although high street lenders are often the least flexible, with the government sharing some of the risk, favourable rates are available to some borrowers.

Reasons to choose the guarantee scheme include…

  • It’s open to second-time buyers: Other government schemes are only available to first-time buyers, so if you’re a second-stepper, the guarantee scheme could help you out as it’s open to everyone, including first-time buyers and home-movers.
  • Lengthy fixed rates are available: Every lender that’s supporting the guarantee scheme is offering a five-year fixed-rate product in their range. This means that if you qualify for a low-interest deal, you can lock yourself into it for five years.
  • You can own your home outright with no extra debt to pay: This is one of the main benefits of the scheme over Help to Buy and Shared Ownership. With Help to Buy, you will end up with an extra loan to pay off (although it’s interest-free for five years) and with Shared Ownership, you don’t own the entire property outright and have to pay rent on the portion that is owned by the local council/housing association.
  • Wider choice of properties: Help to Buy is limited to new-build homes while Shared Ownership is restricted to new builds and existing properties that are exclusively available through resale programmes from local housing associations.

You can read more about the 2021 mortgage guarantee scheme in our blog.

Why choose Help to Buy?

With the Help to Buy scheme, you put down a 5% deposit on the property you’re buying and the government tops this up with an equity loan worth 20% of the purchase price (40% in London). This means that you can get onto the property ladder with more equity than 5% deposit would normally get you, but with an extra loan to settle along with your mortgage.

The Help to Buy scheme is attractive to some house-buyers because…

  • The risk of falling into negative equity is lower: If you were to take out a standard 95% LTV mortgage or buy through the guarantee scheme, you would potentially be at risk of falling into negative equity if house prices were to drop in the future.
  • The loan is interest-free for five years: While the extra equity comes from a loan, it’s interest-free for five years and you can make repayments at any time.
  • Favourable interest rates are often available: Since you end up with more equity using Help to Buy, it’s often the case that more favourable interest rates are available compared to the 95% LTV deals. The latest version of Help to Buy is exclusive to first-time buyers, so some lenders offer deals that are accessible to them.

You can read more in our complete guide to Help to Buy mortgages.

Why choose Shared Ownership?

Shared Ownership is considered a middle ground between buying and renting as mortgages offered through this scheme are co-ownership arrangements between the borrower and either a local council or housing association. You own a share of the property yourself (usually 25% or higher) and pay rent for the remaining proportion.

People usually choose Shared Ownership because…

  • It’s easier to get than a full-ownership mortgage: Shared Ownership provides a fallback option for people who can’t afford a standard mortgage or don’t qualify for one. Although there are still rent payments to make, you’ll own a stake in an asset that might increase in value over time, so it can still be considered an investment.
  • You can increase your stake in the property: The share of the property you originally buy into doesn’t have to remain fixed for the duration of the agreement. You can increase it over time through a process called staircasing.
  • It’s possible to get a mortgage with less than 5% deposit: Although there are 5% deposit mortgages available through Shared Ownership, it’s also possible to get a 100% mortgage via the scheme, under the right circumstances.

You can read more in our guide to Shared Ownership mortgages.

Are there 95% mortgages that are not Help to Buy deals?

Yes, but first we need to do a spot of myth-busting: Help to Buy mortgages are not 95% LTV mortgages per se. The loan-to-value ratio on them will be lower than 95%, as the equity loan will secure you a larger out rightly-owned stake in the property. If you were to buy a property with 5% deposit and decide against a Help to Buy equity loan, you’d have 95% LTV.

There are true 95% LTV mortgages that you can apply for outside of the Help to Buy scheme. The mortgage guarantee scheme is for borrowers with less than 10% deposit, so the loan-to-value ratio on these deals ranges between 91% and 95%.

Moreover, there are other non-Help to Buy 95% mortgage options to consider, even in the post-coronavirus age of lending, and the main one are…

  • New 95% LTV mortgagesSince the government announced the guarantee scheme, several mortgage lenders have re-entered the 5% deposit market with the launch of new 95% LTV products. Some of these are exclusive to first-time buyers and are only available through a mortgage broker. A range of rates and terms are available, giving customers with low deposits extra choice if they wish to avoid government schemes.
  • Guarantor mortgagesA potential option for customers with little or no deposit of their own and a family member who’s willing to help them out financially. If said family member agrees to act as a guarantor for you, they will need to either secure your mortgage against a property they own and hold equity in, or lock in a certain amount of savings into an account held by the lender. They will also need to agree to take over the mortgage payments if you’re unable to make them.
  • Shared Ownership: A potential alternative to Help to Buy for those who don’t qualify for a full mortgage and don’t mind co-owning their property.

Are there 95% government-backed mortgages?

The only 95% LTV mortgages available through government schemes are the 5% deposit deals that have hit the market as part of the guarantee scheme, and Shared Ownership agreements. As we’ve already discussed, the mortgages on offer through Help to Buy have a higher loan-to-value ratio than 95% when the equity loan has been factored in.

Which government schemes provide 5% deposit mortgages for first-time buyers?

The latest version of the Help to Buy scheme, which runs until 2023, is exclusive to first-time buyers and can help them get onto the property ladder with 5% deposit. Shared Ownership is open to first-time buyers, former homeowners who can’t currently afford a mortgage and home-movers with an existing Shared Ownership property, and it’s possible to buy a share of a property with 5% deposit or even less than that, under the right circumstances.

Furthermore, the mortgage guarantee scheme is open to first-time buyers and home-movers alike, with deposit requirements starting at 5%, though it’s possible to put down up to 9%.

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Speak to an expert about government mortgage schemes

With several different government schemes to choose from and the alternatives to consider, it can be difficult to choose the right mortgage option if you only have 5% deposit to put down. Rates and deals vary across these schemes and product types, and picking the wrong option could mean paying too much interest or being rejected altogether.

But there’s a quick and easy way to make the correct choice. The right mortgage broker can go through every possible 5 percent deposit mortgage option with you, whether that’s a government scheme, a guarantor mortgage or something else entirely, and help you make an informed decision. Speaking to a broker before you apply could mean saving time, money and potential disappointment, plus they’ll walk you through your application, step by step.

We offer a free broker-matching service that will take your needs and circumstances into account before hand-picking a mortgage advisor with the ideal knowledge and experience for the job. This will be a broker who helps people get a low deposit mortgage every day.

Speaking to the right mortgage advisor can boost your chances of mortgage approval, so call 0808 189 2301 or make an enquiry and we’ll set up a free, no-obligation chat between you and your perfect broker today.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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