5% Deposit Mortgages for First-Time Buyers

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Home 95 Ltv Mortgages 5% Deposit Mortgages For First-Time Buyers
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Updated: April 22, 2024

Saving for a deposit while paying rent or supporting a family can be tough – particularly in the middle of a cost-of-living crisis. But in some cases, mortgage repayments can be cheaper than rent. This is just one reason why 95% LTV mortgages can be a viable option for some first-time buyers.

In this article we’ll look at the various options for first-time buyers who have a 5% deposit and why speaking to a specialist broker should be your first step towards getting the right mortgage deal for your circumstances.

Can first-time buyers get a 95% LTV mortgage?

Yes. There is no reason why you shouldn’t be able to get a 95% mortgage as a first-time buyer provided you meet the lenders’ eligibility criteria.

In fact, using a a 5% deposit government scheme, you may even have more access to low deposit mortgages as some of them are exclusive to first-time buyers.

But, depending on your circumstances, government schemes aren’t always the best option. Several high street banks and specialist lenders have re-entered the 95% loan to value (LTV) mortgage market since the end of the coronavirus pandemic. So, it’s worth checking the whole market to determine the best deal for you.

You may also find that other schemes are more appropriate for your situation such as:

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What other options are available?

The first thing to note is that being a first-time buyer doesn’t necessarily exclude you from any mortgage deals. However, having a low deposit may prevent you from accessing the best rates. So, in theory, all 95% LTV mortgage deals are open to first-time buyers.

However, some products are more likely to be suitable for first-time buyers with a 5% deposit. These include government schemes such as:

Mortgage Guarantee Scheme: Sees the government encourage lenders to offer 95% mortgages by guaranteeing part of the mortgage against loss. This scheme is only available through participating lenders and they must offer 5-year fixed deals as part of it.

Shared Ownership: First-time buyers with a small deposit can get on the housing ladder by purchasing a percentage of a housing association property and paying rent on the portion they don’t own. It typically requires a 95% mortgage for the portion you wish to buy. But it is possible to get a 100% Shared Ownership mortgage given the right circumstances..

You may also be able to get financial help from family (or even friends with some lenders). It’s not uncommon these days for parents or grandparents who have sufficient equity or savings, to support family members looking to buy their first home.

Options here include:

Guarantor mortgages: A guarantor puts up collateral in lieu of a deposit in order to effectively increase your equity and give you access to better mortgage rates.

Family offset mortgages: Similar to a guarantor mortgage but a family member locks an amount of money in an account to serve as security.

Joint buyer sole proprietor mortgages: Allow you to buy jointly with a family member but have 100% ownership of the property.

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How to get a first-time buyer mortgage with a 5% deposit

To make the process easier and ensure you get the best deal, follow these steps:

  1. Find the right property and location: Sometimes, by looking a little further afield you’ll find property prices are lower in a neighbouring town or county. This can mean your deposit is worth more than 5%.
  2. Check your credit files: A low deposit is considered higher risk by some lenders. So, it’s worth making sure your credit file is as clean as possible. That means keeping payments up to date, clearing any discrepancies from your credit files and making sure you’re on the voters roll.
  3. Speak to a specialist low deposit mortgage broker: Many first-time buyers with a 5% deposit find the biggest problem is understanding all their borrowing options and pinpointing the one that is right for them. A broker will cut through the confusion and help find the right lender and product.

Will the interest rates be higher?

Yes. 95% mortgages and 100% mortgages tend to have the highest rates. Other factors, for example bad credit, can also influence the rate you are offered. But roughly speaking, with a 5% deposit you can expect your rate to be around 1% higher than the equivalent deal based on a 10% deposit 90% LTV.

But it’s worth bearing in mind that each lender sets their own rate. And with more 95% LTV mortgages hitting the market (and some lenders’ concerns allayed by government support) there are still some competitive deals out there for 95% mortgages.

Which lenders will consider your application?

Mainstream lenders that will consider 95% mortgages for first-time buyers include:

  • Barclays
  • HSBC
  • Santander

While you may not necessarily get offered the rate you want by a mainstream lender, there may be specialist mortgage providers that can offer you a better deal. Bear in mind though that some specialist lenders operate exclusively through brokers.

For example, Accord was one of the first lenders to embrace 5% deposit mortgages for first-time buyers, but they don’t accept applications directly from the public.

Get matched with a broker who specialises in low deposit mortgages

Any mortgage is a huge commitment. But when you are borrowing 95% of the value of your home, it’s absolutely vital you get the best deal on your finance. The only way to do that is to compare every possible deal on the market. And this is a huge job for any first-time buyer.

An expert low deposit mortgage broker will quickly narrow down your options and guide you through them so you make a fully informed decision.

The brokers we work with have whole of market access and deep knowledge of the first-time buyer market. Our broker matching service will assess your situation and then pair you up with a broker who is experienced in helping first-time buyers with a small deposit to secure the best deal available.

To get matched with your ideal mortgage broker call today on 0808 189 2301 or enquire online.

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FAQs

This will depend on individual circumstances determined by factors such as affordability assessments and credit checks. But as a guide, most lenders will be prepared to lend 4.5 times the combined borrower income.

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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 Online Mortgage Advisor of course!

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Pete Mugleston

Mortgage Advisor, MD

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