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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 4th May 2021*

The days when first-time buyers (FTBs) had limited mortgage options are now behind us. Things have improved dramatically since the early days of COVID – 95% LTV borrowing is back, a new phase of the Help to Buy scheme began in April 2021, and the mortgage guarantee scheme has added even more options for customers with less than 10% deposit.

In our guide to 5% deposit mortgages for first-time buyers, we go through each of these options and their alternatives in detail, and tell you how to get the right advice about them.

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Are 5% deposit mortgages available to first-time buyers?

Not only can first-time buyers apply for the same 95% LTV and 5% deposit mortgage as everyone else, they actually have more choice in this corner of the market. This is because some of the government schemes and specialist products that can help you get onto the property ladder with only 5% deposit are exclusive to first-time buyers.

They include…

  • Help to Buy equity loan scheme: This is now in phase three and is exclusive to first-time buyers, with regional property caps among the latest changes.
  • Shared Ownership: This co-ownership scheme is exclusive to first-time buyers and people who used to own a property but can no longer afford a mortgage. Deposit requirements are 5% or less, but it’s possible to put down more.
  • New 95% LTV mortgages: Since the mortgage market began its recovery from the effects of the coronavirus pandemic, several lenders have relaunched their 95% LTV mortgage range with products that are exclusive to first-time buyers.
  • Guarantor mortgages: If you have a family member who’s happy to help you out financially, it may be possible to get a guarantor mortgage with a 5% deposit made up of your own funds. Some lenders only offer these products to first-time buyers.

In addition to the exclusive first-time buyer schemes and products listed above, first-time buyers can also apply for mortgages through the 2021 mortgage guarantee scheme, which is open to all customers with 5% deposit, although it’s possible to put down up to 9%.

95% LTV mortgage lenders for first-time home buyers

A handful of the UK’s biggest high street mortgage lenders are offering 95% LTV products under the new mortgage guarantee scheme. Since the initiative was announced, several specialist lenders have re-entered this market and are offering new 95% LTV mortgages for first-time buyers outside of the scheme.

The first mortgage lenders to reintroduce these products were broker-exclusive lenders such as Accord Mortgages. This means that some of the 95% LTV deals for first-time buyers cannot be accessed without the help of a broker, so it’s worth your while speaking to one.

We could provide a comprehensive list of every lender who is offering 5% deposit mortgages for first-time buyers, but this wouldn’t be especially helpful. Approaching a lender directly is not recommended since you’d only have access to their products, and looking into every single mortgage provider in this category would take a lot of legwork. With this in mind, Speaking to a broker is your best bet, as this will give you access to the whole market.

5% deposit mortgage rates for first-time buyers

You won’t necessarily pay higher interest rates on a 5% deposit mortgage purely because you’re a first-time buyer, but low-deposit mortgages in general tend to come with steeper rates. For instance, most 95% loan-to-value mortgage products have an interest rate that’s roughly one percentage point higher than equivalent deals with 90% LTV.

Broadly speaking, 95% LTV mortgages come with the highest rates around, but there are ways that first-time buyers can boost their chances of getting onto the property ladder with 5% deposit and a favourable interest rate. Firstly, competitive rates are often available through first-time buyer schemes like Help to Buy. And secondly, a mortgage broker can help you secure the best rates by matching you with the mortgage lender who’s best place to offer a table-topping deal to a first-time buyer with your needs and circumstances.

But which government scheme, if any, should you choose? Is the bonus equity a Help to Buy loan gets you worth the extra debt it comes with, and exactly what rates are on offer through these options? These are all questions that a mortgage broker can answer for you.

Is it harder to get a 5% deposit mortgage as a first-time buyer?

It certainly would be without government schemes and specialist mortgage products to fall back on, as the number of approachable lenders would be thin on the ground. Most mortgage providers will expect you to be able to put down at least 10%, but specialist lenders sometimes accept less than this, and through the mortgage guarantee scheme, Help to Buy and guarantor mortgages, customers with 5% deposit have possible options.

Although getting approved through a government scheme or specialist mortgage lender can be fairly straightforward if you meet the eligibility criteria, landing the most favourable interest rates is often more difficult. It’s usually the case that the rates are higher if you have less than 10% deposit to put down and the best deals can be tricky to come by.

This is why it’s recommended that you speak to a mortgage broker who specialises in finding finance for customers with a low deposit. They can compare all of the deals and schemes that you qualify for and help you choose the right option first time.

Eligibility requirements

Many of the schemes and products that first-time buyers can use to get a mortgage with 5% deposit have specific eligibility requirements, and they are as follows…

Mortgage guarantee scheme

The mortgage guarantee scheme isn’t exclusive to first-time buyers, but the criteria they need to meet to qualify for it is the same, and you can find an overview of it below.

  • The property must be a primary residence
  • Property must be valued at no more than £600,000
  • Applicant must be an individual(s), not a company
  • Mortgage must be set up on a repayment agreement, not interest only

Help to Buy equity loan

The Help to Buy scheme has now entered its third phase and is exclusive to first-time buyers. To qualify for it, you need 5% deposit and must meet the below requirements.

  • Must be buying a new-build property
  • Property must be a primary residence
  • Property must fall below the price cap for your region

Shared Ownership

There are 95% LTV Shared Ownership mortgages available to first-time buyers as long as the criteria below applies to them.

  • Their household is earning £80,000 or less (£90K in London)
  • The property must be a primary residence
  • It must also be a new-build or a re-sale housing association property

Guarantor mortgages

It might be possible to get a guarantor mortgage with a 5% deposit of your own if you meet the following requirements…

  • The guarantor must be a blood relative, such as a parent(s)
  • The guarantor must agree to secure a property they own against the mortgage, or place a certain amount of savings into a special account held by the lender
  • They must also agree to take responsibility for the mortgage if you’re unable to
  • Guarantor and borrower must both meet the lender’s eligibility criteria

In addition to the scheme requirements we’ve covered above, you will also need to meet the mortgage lender’s general criteria. If you’re applying for a 95% LTV mortgage without using a government scheme, the criteria you’ll have to meet as a first-time buyer will be no different to any other applicant, though the right broker might be able to match you with a mortgage lender who’s more lenient with first-time buyers and offers them exclusive deals.

What if you have bad credit?

Having bad credit isn’t necessarily a deal-breaker, even if you’re applying for a 95% LTV or 5% deposit mortgage as a first-time buyer. It is, however, essential that you seek professional advice before you apply, as the best rates and deals will almost certainly be difficult to come by. You’ll likely need to find a specialist lender who’s willing to take the age, severity and reason for your bad credit into account while assessing your application.

The right mortgage broker can help you find a lender who caters for the following and understands their unique needs…

  • First-time buyers
  • Customers with small deposits
  • Customers with bad credit

Since your application will tick all three boxes, the chances of rejection or being lumbered with unfavourable interest rates are high, but the right mortgage broker can tip the odds in your favour. There are mortgage advisors in our network whose specialise in all of these niches, and they can help you find the right lender, first time.

Speak to an expert

If you’re a first-time buyer who’s looking for a 95% LTV or 5% deposit mortgage, speaking to a mortgage broker before you press ahead is recommended. The risk of rejection or ending up with an unfavourable deal are high if you go it alone, since some lenders see low deposits as risky and first-time buyers as a demographic to be cautious of.

But this doesn’t apply to all mortgage providers. Getting a good deal with a 5% deposit is absolutely possible for first-time buyers, provided they get the right advice about which government schemes and specialist mortgage products could potentially help them.

This is where we come in. We’ve made it our mission to make sure people get the right advice about mortgages and we offer a free broker-matching service that can pair you up with a handpicked expert who has the exact knowledge and experience you need.

Call 0808 189 2301 or make an enquiry and we’ll set up a free, no-obligation chat between you and a broker who helps first-time buyers get low-deposit mortgages every day!

Updated: 4th May 2021
OnlineMortgageAdvisor 2021 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of 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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