House prices in the UK continue rising faster than most people can save.
You’re paying high rent each month, which makes it even harder to put money aside for a deposit. It feels like you’re stuck in an endless cycle – the longer you rent, the more house prices increase, and the further homeownership slips away.
What if you could buy your own home with just a 5% deposit?
Thanks to recent changes in the mortgage market, more banks and building societies now offer 95% mortgages, backed by a government guarantee scheme.
In this guide, we’ll show you how 5% deposit mortgages work, who can get one, and what you need to do to apply successfully.
Understanding the Basics
A 5% deposit mortgage means you’ll need to save just 5% of the property’s value as your deposit, with a mortgage covering the remaining 95%.
For example, if you’re looking at a £400,000 property, you’d need £20,000 as your deposit, with a mortgage of £380,000.
In mortgage terms, this is known as a 95% loan-to-value (LTV) mortgage.
As a comparison, a £40,000 deposit represents 10% of the purchase price and allows you to qualify for a 90% LTV mortgage.
95% mortgages have become more widely available thanks to the government’s mortgage guarantee scheme, which gives lenders additional security when offering high LTV mortgages. This means more banks and building societies are willing to offer these mortgages than before.
Related reading: Improve your chances of first-time buyer mortgage success
What does loan to value mean?
When you borrow money to buy a home, the loan is typically expressed as a percentage of the property’s value. This is known as the loan-to-value ratio (LTV). Lenders look at your LTV when deciding if they’ll accept your mortgage application – the lower, the better.
Who Can Get a 5% Deposit Mortgage?
You might be surprised at who qualifies for these mortgages.
While they’re most popular with first-time buyers, they’re also available to home movers. As long as you’re at least 18 years old, live in the UK, and have a steady income, you could be eligible.
Employment status
For employed buyers, lenders ideally want to see at least 6 months in your current job. If you’re self-employed, you’ll usually need to show two years of accounts.
Credit history
You will also need a decent credit profile, lenders want to see you managing money responsibly, which means paying bills on time and keeping credit card balances reasonable.
Not borrowing money can have a negative effect here, as there’s not much information for lenders to see, making it more difficult for them to assess you.
Income
Your gross annual income needs to be sufficient to qualify for the 95% mortgage you need.
Multiply your income by 4-4.5 to see what this might be.
- £50,000pa = £200,000 to £225,000
- £60,000pa = £240,000 to £270,000
- £75,000pa = £300,000 to £337,500
Certain professional occupations can qualify for higher income multiples from certain lenders. These can include; teachers, solicitors, dentists and doctors.
Affordability
Having sufficient annual earnings is only part of the story. The lender will also look into how you spend your money each month, and how well you manage your finances.
Read more: Mortgage Affordability Explained
Property
And then there’s the property you want to buy.
The lender will assess its location, value, condition and construction type. There are certain types of property that are harder to mortgage than others, these include; thatched properties, flats above a shop, ex-council houses and concrete houses.
Finding a mortgage for these is a little bit trickier and often requires a Specialist Property Mortgage. However, it’s rare to find a deal that needs just a 5% deposit. Due to the additional lending risk, you will need to have a deposit of 15%, or more.
Get access to expert brokers and over 100 lenders
Understanding What You Can Borrow
Your borrowing amount mainly depends on your income.
Most lenders will consider between 4 and 4.5 times your annual salary. For joint applications, they’ll look at your combined income.
If you earn £35,000 a year, you might be able to borrow around £157,500. With your 5% deposit added, this could help you buy a property worth £165,000.
Lenders look beyond just salary though.
They’ll examine your monthly bills, any loans or credit cards, and regular commitments. They need to be confident you can manage the monthly payments, especially since you’re borrowing a larger portion of the property’s value.
This is called mortgage affordability.
Your Mortgage Costs
Monthly payments on a 5% deposit mortgage will be higher than with a bigger deposit for two reasons.
First, you’re borrowing a bit more of the property’s value.
Second, the interest rates tend to be slightly higher because lenders see these mortgages as riskier.
Beyond your deposit, you’ll need money for several other costs.
Property surveys typically cost between £300-£750, and you’ll need to budget for legal fees around £1,000-£1,500. You’ll also need to pay any mortgage arrangement fees and set up buildings insurance.
First-time buyers get some help here, as they don’t need to pay as much in stamp duty.
Building Your Deposit
To buy a £400,000 property, you’ll need at least £20,000 sitting in your bank account.
While that’s still significant, it’s much more achievable than larger deposits. Setting up a dedicated savings account helps track your progress, and many people find success with regular monthly transfers on payday. Even £200-£300 per month adds up over time.
Many first-time buyers boost their savings using a Lifetime ISA, where the government adds 25% to your savings (up to £1,000 per year). This can significantly speed up your journey to having enough deposit.
Family Support and Gifted Deposits
A huge number of home buyers benefit from the generosity of their family.
Many lenders accept gifted deposits from family members – typically parents or grandparents. A gifted deposit is money given to you with no expectation of repayment and no stake in the property.
The person giving the money must confirm this in writing, and they’ll need to prove where the money came from. Your lender (and solicitor) will want to see the paper trail of the money moving between accounts.
Related reading: Getting a joint mortgage with parents
Making a Strong Application
Getting ready for a mortgage application takes some preparation, especially with a 5% deposit where lenders look extra carefully at your finances.
Start by checking your credit report at least six months before applying. Make sure all your details are correct and up to date. Staying in your current job while applying helps too – lenders love stability.
In the months before applying, keep your bank statements looking healthy. Try to avoid your overdraft and cut back on non-essential spending. Build up a small emergency fund beyond your deposit – this shows lenders you can manage money well.
And don’t apply for any new credit!
Related reading: How to get mortgage ready
Working with Professionals
A whole of market mortgage broker can make a real difference when you’re applying with a smaller deposit.
They know which lenders offer the best rates for your situation and often have access to deals you won’t find on the high street. They’ll help package your application properly and guide you through the whole process.
Many brokers have direct relationships with lenders’ underwriters, meaning they can often get quick answers on whether a case might be accepted. This saves time and protects your credit score from failed applications.
Read more: What does a mortgage broker do?
Taking Your Next Steps
Start by working out what you can realistically afford each month.
Look carefully at your income and spending, and use online calculators to estimate potential mortgage payments. Remember to factor in all those other costs we mentioned earlier.
Speaking with a mortgage broker gives you a clearer picture of what’s possible. They’ll help you understand which options work best for your situation and guide you through the next steps.
Want to explore your options with 5% deposit mortgages? Get in touch with our team, and we’ll connect you with a broker who specialises in helping people with smaller deposits become homeowners.
Frequently Asked Questions
Yes, interest rates are usually higher than mortgages with bigger deposits because lenders see them as higher risk.
No, a lot of lenders exclude new builds and some won’t lend on flats above certain floors or non-standard construction properties.
Your best course of action is to have a chat with a broker to see what’s possible.
Yes, but you’ll typically need at least 2 years of accounts and may face stricter criteria.
Yes, you’ll need additional funds for mortgage related fees and it’s wise to have an emergency fund too.
Yes, most lenders accept gifted deposits from immediate family members. You’ll need a letter confirming it’s a gift, not a loan, and proof of where the money came from.
There’s no set minimum, but lenders typically offer 4-4.5 times your annual income. For example, with a £40,000 salary, you might be able to borrow up to £180,000.
Take a look at our Maximum mortgage calculator.
Yes. Paying a higher deposit will mean your mortgage is a bit smaller and the LTV lower. This could mean that you qualify for a cheaper rate, although you probably need to get up to a 10% deposit for this to be noticeable.
It also helps with the affordability tests, as the monthly repayments are slightly lower.
