5% Deposit Schemes For Second-Time Buyers

Find out all about the 5% deposit schemes available to second-time buyers here.

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

Author: Pete Mugleston

Mortgage Advisor, MD

Updated: March 15, 2024

Many homemovers use the equity they’ve built up in their first home for a deposit. However, this isn’t always an option, particularly if the value of your property has fallen since you bought it.

In this situation, you’d have to look elsewhere to find the funds for a deposit.

Fortunately, there are schemes available to help second-time buyers with a deposit as small as 5%. In this guide, we explain everything you need to know about these schemes, including how they work, eligibility requirements, and how a broker can help.

Read on for more information or jump to the section that’s relevant to you via the links below…

Can you get a 5% deposit mortgage as a second time buyer?

Yes, there are a number of home buying schemes available to people who own or have previously owned a property before, who only have a 5% deposit. Here’s a rundown of what’s available:

Launched in 2021, the mortgage guarantee scheme is a government initiative aimed at increasing the number of 95% loan-to-value (LTV) mortgages on the market. Participating lenders purchase a guarantee, which means the government will compensate them in the event a borrower defaults on their mortgage repayments. The scheme is available to borrowers with a deposit of between 5% and 9%.

Additional eligibility criteria for this scheme includes:

  • The property you’re buying must be valued at less than £600,000.
  • The property must be your primary residence. It can’t be a new build, holiday home or buy to let.
  • The mortgage you apply for must be a repayment method, not interest-only, from a participating lender.

Shared Ownership lets you buy a share of a new build property and then rent the remaining share from a council or housing association. If and when you can afford it, you can buy more of your home over time, which is known as staircasing. The more of the property you own, the less rent you pay, and it is possible to eventually purchase 100% of it. This scheme is open to people who used to own a property but can’t afford to buy a new one as well as first time buyers.

Below is the criteria you must meet to qualify:

  • You have a deposit of at least 5% of the value of the share you’re buying
  • Your household income is less than £80,000.
  • You don’t own another home.
  • You’re over 18.
  • The property you’re buying is a new build.
  • You can’t afford to buy a similar property on the open market.
  • You meet the criteria of the housing association you’re buying the property from.
  • You meet the lender’s standard eligibility criteria.

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Is it harder to get approved with a small deposit?

Not necessarily. If a lender offers low deposit mortgages – either through one of the above schemes or not – and you meet their specific eligibility and affordability criteria, there’s no reason why you shouldn’t get your application approved.

You may find your choice of mortgage deals is more limited, however, as not all lenders offer low deposit mortgages. Also, you’ll find that low deposit mortgages typically come with higher rates and fees as you’d be deemed a higher risk borrower. Your monthly repayments will also be higher as you’ll be borrowing more money.

How a broker can help with a 5% mortgage

If you’re considering using one of the above schemes to purchase a property, it’s important to seek advice from an experienced mortgage broker first.

Taking out a mortgage with a 5% deposit may help you achieve your dream of moving to a new home, but it comes with risks. Your loan won’t be cheap and you’ll probably find yourself paying a pretty hefty interest rate. An independent broker specialising in low deposit mortgages will be able to review your individual circumstances and make sure you’re not overstretching yourself financially.

They can also advise on which, if any, of the 5% deposit schemes you qualify for, and help you through the application process. They’ll have relationships with many of the lenders participating in the schemes, and may even be able to get exclusive deals that aren’t available to the general public.

Looking for a broker who specialises in 5% deposit mortgages? Get in touch and we’ll match you to one of the experts in our network today.

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Which lenders accept a 5% deposit?

Only a handful of lenders are known to participate in the mortgage guarantee scheme, these include:

  • HSBC
  • Barclays
  • Virgin Money
  • Santander
  • Natwest
  • Lloyds

Only a limited number of lenders have signed up to the deposit unlock scheme. They are:

  • Nationwide
  • Accord
  • Newcastle Building Society

You’ll have a wider choice of lender if you opt for the Shared Ownership scheme including mainstream brands such as Nationwide, Halifax and Barclays, and specialist lenders such as Pepper Money and Accord. It’s worth noting that some of the high street names reserve Shared Ownership mortgages for first time buyers only.

Finally, bear in mind that there are also a minority of lenders who offer 95% LTV mortgages outside of the above schemes, and using a broker will help you access them.

Typical interest rates

As mentioned above, interest rates on 5% deposit mortgages are typically the highest to counter the potential risk involved. The table below provides an illustration of the rates that are currently available.

Lender Product Details
Frosted Rates Image

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Last updated May 2024

The rates quoted above were correct at the time of writing and are subject to change at any time at the lender’s discretion. Speaking to a mortgage broker is the best way to keep track of the rates available at any given time.

Alternative options

If none of the schemes are suitable for you, there are other options available to you if you have a 5% deposit.

One option is to get a 95% LTV mortgage without using one of the schemes. Although the low deposit mortgage space is pretty limited, there are products available. Accord, for example, has just re-entered the space (in January 2023), and others are expected to follow suit. A broker will be able to advise you on whether these products are right for you.

Another option is a guarantor mortgage. This is a special type of home loan that can help people onto the property ladder who might otherwise struggle to get approved.

With this loan, a close family member – usually a parent or grandparent – agrees to step in and cover the mortgage repayments if the homeowner can’t afford to do so.

Some, though not all, of these products are available to second-time movers. Again, a broker is best placed to advise on these.

Speak to a broker who specialises in low deposit mortgages

As you can see, there are plenty of options available to you if you’re a second-time buyer with a small deposit. A specialist broker is best placed to help you find the most suitable deal for your circumstances and to make sure you’re paying the most competitive rate.

Our broker matching service can connect you with an expert who specialises in low deposit mortgages today.

Give us a call on 0808 189 2301 or make an enquiry and get matched with a broker for a free initial conversation.

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FAQs

Yes, you can still get a small deposit mortgage if you’re self-employed. However, each lender will have its own criteria when it comes to non-standard employment, which you’ll need to satisfy in order to secure a loan.

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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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