5% Deposit Mortgage

If you're wondering if you can get a 5% deposit mortgage in the UK for first-time buyers, the short answer is yes, it is possible – there just aren’t many lenders offering 5% deposit mortgages at the moment. While most lenders typically ask for a minimum of 10% mortgage deposit, not everyone looking to buy a home can afford that.

A 5% deposit mortgage is a type of secured loan where you only pay 5% of the total value of the property. The mortgage loan covers the remaining 95% of the property's value; it has an LTV (loan-to-value) of 95%. For example, if you were hoping to buy a home for £200,000, a 95% LTV mortgage would cover £190,000 of the cost, so you’d be required to put down a 5% deposit, equivalent to £10,000.

These 5% mortgages are ideal for first-time buyers who may struggle to save up a larger deposit. However, these types of mortgages tend to come with higher rates and you'll be limited in your choice of lenders and mortgage products.

You can’t get a 90% or 95% LTV mortgage for a buy-to-let property. Read our Buy to Let mortgage deposit guide.

How much you can borrow will depend on your situation. Mortgage lenders can offer up to 4.5x your annual salary or a little less if the mortgage is based on 2 salaries. For example, if you wanted to buy a home worth £250,000 and have a £12,500 deposit – equivalent to 5% – you'd ideally need to be on a salary of around £52,000 a year to qualify for a 5% deposit mortgage.

There are several factors mortgage lenders will want to look at when deciding whether to offer you a 5% deposit mortgage. We go through these below.

Ideally, if you can put down a bigger deposit than 5%, you'll be able to access a wider choice of lenders and access cheaper mortgage deals. A 5% deposit mortgage does have several disadvantages, so it shouldn't be considered lightly.

To work out how much you need to save each month to reach your deposit amount, try our mortgage deposit calculator.

LTV is the percentage of the property's value covered by the mortgage. Right now, the maximum LTV available is 95%. This means that the lender lends you money to cover 95% of the purchase price and you contribute 5% in deposit. It also means you start off with 5% equity in your property – in simple terms, you “own it outright”. With a repayment mortgage, you increase your equity each month by paying back a some of the amount you borrowed.

The higher the LTV, the more you have to pay back and the more you pay in interest. This makes the risk bigger for lenders as they have to rely on you to pay them back. If you can't keep up with your mortgage repayments, the lender has the option of repossessing the property to recover its losses.

The best mortgage deals are offered to buyers with a lower LTV, often around 70%.

Assuming you meet the mortgage lender's criteria, you might be able to get a 5% deposit mortgage on a new build home. However, the lender will want to see that you can afford the monthly payments, especially if interest rates rise.

As an alternative to a 5% deposit mortgage, you might qualify for the Help to Buy: Equity Loan scheme. This is where the Government lends buyers up to 20% of the cost of a new build home in England. If you only have a 5% cash deposit, with the addition of a 20% loan you could potentially borrow the remaining 75% from a mortgage lender.

If you're in London, a 5% deposit will allow you to get a government loan of up to 40% of the purchase price of a new build home. You could then borrow the outstanding 55% from a mortgage provider. However, it's worth considering that mortgage lenders participating in the Government's mortgage guarantee scheme won't offer 5% deposit mortgages on new build homes.

You can remortgage onto a new deal after buying a your first home with a 95% mortgage once your mortgage deal period ends. By waiting until your deal ends, you’ll avoid ERCs (early repayment charges and you’ll have built up more equity in your home to be able to remortgage onto a lower LTV mortgage with a better rate. You can start arranging your new deal up to 6 months before your deal ends so it’s all in place and you can avoid going onto your lender’s more expensive SVR (standard variable rate).

If you want to remortgage sooner, you’ll typically have to wait until at least 6 months after your name is added to the title deeds. It’s possible to remortgage before then, but your choice of lenders and products will be limited so you should definitely speak to a mortgage broker.  

You can apply for a 5% deposit mortgage through a mortgage broker like John Charcol or directly with the lender. You'll be required to go through the same credit and affordability checks as with any new mortgage.

If you're looking to get a 95% LTV mortgage under the government’s Mortgage Guarantee Scheme, you'll need to submit your mortgage application before 31 December 2022. With this scheme, you can apply for a 5% deposit mortgage if the property you want to buy is not a new build and is not worth more than £600,000. The property must also be your only home. It cannot be a buy-to-let or a second home. You'll also be required to take out a repayment mortgage and not apply to borrow more on your mortgage for at least the next 7 years.

Contact us on 0330 433 2927 to find out more.