The 5% deposit mortgages government scheme for first time buyers is known as the Help to Buy scheme. 

So what is the help to buy scheme, and do you qualify?

I think we can all agree that the government made some interesting decisions in 2020…

But one of the better ones are the new 5% deposit mortgages that have been rolled out to potentially help millions of Brits get onto the property ladder.

But what exactly are these 5% deposit mortgage schemes? 

How do they work?

And who is eligible? 

Can you buy any type of property on a 5% deposit mortgage scheme? 

And what about your credit rating – does that make a difference?

In this article I’m going to be looking at the PM’s promise to turn “generation rent into generation buy”, and answering those questions and more. 

1. What Is The 5% Deposit Mortgages Government Scheme?

Put simply, you put down 5% of the property value as a deposit.

Then you borrow the remaining 95% from a lender – although there are variations of this depending on which type of mortgage scheme you go for.

But, as a basic example, if you wanted to buy a house that’s worth £200,000, you would put down a £10,000 deposit, and get a mortgage for £190,000. 

So far, so easy – right?

5% deposit mortgage

2. What 5% Deposit Mortgage Options Do I Have?

The need for a large deposit is often the stumbling block for many people when it comes to buying a house.

So, only needing a 5% deposit is music to the ears of first-time buyers.

Especially if you’ve been renting and therefore struggling to save enough to buy your own place. 

The government’s Help To Buy scheme (HTB) allows you to put down a 5% deposit, and then provides an additional 20% loan on top. 

This means that you’ll only need a mortgage for 75% of the purchase price.

The 20% government loan is interest-free for 5 years and is repayable after 25 years – or earlier if you sell your home.  

The scheme used to be open to both first-time buyers and homeowners.

But, changes made to the Help to Buy scheme earlier this year, made it only available to first-time buyers. 

At the moment, in England, Help to Buy scheme is only available on new-build properties. 

This means that if you’ve always fancied yourself in a period property, or you aren’t a fan of modern architecture, then this scheme might not be for you. 

Similarly, if you have your heart set on living in a certain area; not all developers offer the scheme, so your choice of location will be limited.

3. What Is Shared Ownership?

The new shared ownership model has been one of the main outcomes of the government’s pledge to increase affordable housing across the UK.

And, like the Help To Buy, is an alternative route to getting on the housing ladder. 

Want to know more?

Well, instead of getting a mortgage on the whole property, you buy a share, and then pay a mortgage on that share each month. 

You pay rent on the rest of the property to your local housing association. 

As with the Help To Buy scheme, a deposit for a shared ownership home can be as low as 5%.

Although, unlike the Help To Buy scheme, there is no government loan involved. 

4. What Are Standard Mortgages?

This is just a ‘normal’ mortgage; no particular ‘schemes’ involved.

There’s no government loan or part-rent element – just you, buying a house, with a 5% deposit. 

See also  The Differences Between Residential and Commercial Mortgages

5. Who Are 5% Deposit Mortgages For?

Well, luckily, there’s an option for everyone…

A standard mortgage is available to anyone who passes the individual lender’s criteria – it doesn’t matter if you’re buying your first house or your fiftieth.

The Help To Buy scheme is only available to first-time buyers. 

Shared Ownership is only for first time buyers as well – unless you used to own a home but can’t afford to buy one again. 

For example, if you’ve got divorced and it’s left you unable to afford a deposit, or you’ve moved into a less well-paid job, you could still be eligible for the scheme. 

6. Can I Get A 5% Deposit Mortgage At The Moment?

5% deposit mortgages became much harder to get in the wake of the coronavirus pandemic.

Only 10 95% mortgage products were available on the market by August 2020, compared to 273 in March. 

This doesn’t mean you can’t get one, but it does mean that in this current climate lenders will be restricting these deals to the lowest-risk applicants.

This means those with stable, long-term jobs and excellent credit scores

You might even need to have a guarantor (probably a parent), who can cover your mortgage repayments if you can’t. 

So, what if you’ve saved a small amount for a deposit, but you’re not sure that those criteria apply to you at the moment?

Well then you might be better off seeing what happens to the mortgage market over the next 6-12 months, when more lenders might be offering them. 

7. Will I Get A 5% Deposit Mortgage If I Have Bad Credit?

Affordability testing is carried out on any type of mortgage product you take out, and 5% deposit mortgage is no exception. 

Of course a huge part of that testing is a credit check. 

Lenders will want to see that you’ve been paying your bills, credit card payments, and loan repayments on time – for obvious reasons. 

If you’re paying rent you can incorporate that into your Experian credit history, which will help improve your rating.

If you’re paying it in full and on time of course!.

Being on the electoral roll is essential to boost your credit rating.

Improve it further by keeping an eye on it and making sure there are no mistakes on there.

Also, ensure that anything you can pay off – you pay off!

Lenders will also assess your income and regular outgoings, as well as any debts.

This is to determine whether you can afford a mortgage in the first place. 

They’ll also ‘stress test’ your finances, by checking that you could still afford your monthly mortgage repayments if the interest rates were to rise. 

8. What Type Of Property Can I Get With A 5% Deposit Mortgage?

When it comes to the HTB scheme and Shared Ownership, you’ll be limited to the type of property you can buy, and in which area. 

The properties available on these government schemes are new-build and are located in certain areas, so you are somewhat limited.  

It’s also worth knowing that if you go into Shared Ownership, you may well be limited to what you can do home-improvement wise –  

Just until you have a mortgage on the whole property. 

I’m not talking about basic painting and decorating – there should be no problem there. 

But, you will have to get in touch with your housing association before you start landscaping the garden, knocking down walls or repaving the driveway.

If you can find that rarest of beasts – a lender who is offering 5% mortgages, regardless of HTB or Shared Ownership…

…then there won’t be a limit to what type of property you can purchase.

Happy days.

9. Where Can I Get a 5% Deposit Mortgage From?

You’re probably going to think I’m just saying this but…

As with any mortgage product, my advice would always be to seek the advice of a mortgage broker. 

A mortgage broker does all the leg work so that you don’t have to!


AND has access to and knowledge of products and lenders you may not. 

A broker can find a mortgage product to suit your needs, and knows who is likely to give you a mortgage and who isn’t.

This will save you a lengthy and possibly needless application process.

(And if you come and do it through us, the coffee’s pretty good – just saying)

10.Who Offers 5% Deposit Mortgages?

As I said earlier, those lenders offering 95% mortgages have fallen dramatically recently.

However, that’s not to say that won’t change in due course. 

Again, speaking with a broker is your best bet of finding out who is offering the best type of mortgage product to suit you.

11. Is It Better To Wait And Save 10% For A Deposit Instead Of Using A 5% Mortgage Scheme?

Common sense tells us that the more money we can put down as a deposit, the less we have to borrow.

And, the less a lender has to lend, the more likely you are to get accepted for a mortgage. 

Of course having 10% is better than 5%.

But then, having 15% or 20% would be even better, and so on and so forth. 

However, even a 5% deposit can be a huge amount to save – especially if you’re renting.

12. Can I Get Trapped In My 5% Mortgage Scheme?

There’s been a lot of talk in the press about whether or not first-time buyers face being ‘trapped’ when it comes to the government’s Help To Buy scheme.

But what does that mean exactly? 

Well, as I’ve explained (but I’ll say it again in case you haven’t been paying attention)…

The government’s HTB scheme provides a 20% equity loan, which is interest-free for the first 5 years.

This is alongside your own 5% – giving you a 25% deposit to put down on your first home. 

Which is great.

A few points to remember though:

When your 5 year fixed-rate mortgage comes to an end, you will need to start repaying back the equity loan; you’ll also have to remortgage. 

Some lenders don’t offer remortgages under the HTB scheme – despite the fact that they sold you your original mortgage. 

And so, you may have to choose a different lender. 

13. What Will Happen If I Go To Another Lender Once My 5 Year Fixed-Rate Mortgage Comes To An End?

Well, some lenders will insist on the equity loan being repaid as part of the remortgage.

This is going to mean a bigger loan and higher repayments. 

There are only a handful of lenders who will let you keep the equity loan separate.

Which sucks. 

Of course, if you can afford to pay off the whole equity loan it means that the remaining mortgage is just a standard mortgage.

This will give you a lot more options when it comes to lenders. 

The Shared Ownership scheme comes with a few points to remember if you plan to increase your ownership share – aka ‘Staircasing’. 

Namely the costs that are involved, including a valuation fee and legal expenses. 

I hope this blog has helped answer some of the questions you might have had about the government’s 5% deposit mortgage scheme. 

If you have any other questions – about anything mortgage related – give us a call or pop in for a chat!

Your home may be repossessed if you do not keep up repayments on your mortgage.

September 23, 2021  
The information contained within was correct at the time of publication but is subject to change.

About the Author Andy Stevens

30 years is a long time to do anything and that’s how long I’ve been giving financial advice for! Everything you’ll ever need to know about Mortgages and Home Insurance can be found within the digital walls of this website. Fill your boots with as much knowledge as possible and if you have further questions then I would love to help you!