The government’s Mortgage Guarantee Scheme explained

Saving a deposit to buy a home is no small feat. Especially in London, where first time buyers typically need around £45,000 for a 10% deposit, according to research from Nationwide.

The government recognises this affordability challenge of raising a sufficient deposit to step onto the housing ladder. So, it launched a 5% deposit mortgage initiative: the Mortgage Guarantee Scheme, allowing home buyers to borrow a 95% mortgage.

Introduced in 2021 as a temporary response to the COVID-19 pandemic’s impact on the mortgage market, which caused lenders to withdraw low-deposit mortgages, an updated version of the Mortgage Guarantee Scheme became permanently available in July 2025.

Here, we’ve broken down what the scheme is, how it works and how it can help you buy your first home.

What is the Mortgage Guarantee Scheme?

The Mortgage Guarantee Scheme aims to help buyers step onto the property ladder with a small deposit by sustaining the availability of 95% loan-to-value (LTV) mortgages. This allows eligible buyers across the UK to purchase a home with just a 5% deposit.

How does the Mortgage Guarantee Scheme work?

Through the scheme, the government provides lenders with a guarantee on mortgages offered with just a 5% deposit, helping to reduce their financial risk. If a borrower defaults on the mortgage and the property is sold for less than the outstanding loan, the government covers a portion of the lender’s loss.

This added security encourages lenders to offer more 95% mortgage products, giving buyers with smaller deposits a wider range of options to choose from.

It’s not a scheme you apply for; it’s simply work that goes on behind the scenes between the government and mortgage lenders.

Who is eligible for a 95% mortgage?

To access a mortgage via the scheme, you must meet the following eligibility criteria:

• You must be buying a main residential property, not a Buy to Let or second home.
• You must take out a repayment mortgage, not an interest-only mortgage.
• You must have a 5%–9% deposit to take out a mortgage with an LTV of 91%–95%.
• You must pass the lender’s usual affordability checks.

What properties can you buy with the scheme?

Some mortgage lenders place restrictions on the type of property you can buy and thresholds on the purchase price, so it’s worth checking with the lender before applying for a 95% mortgage.

Speaking to a mortgage broker can also give you more clarity, as they have access to the full range of mortgage products and can explain the differences between them, helping you find the best loan for your circumstances.

Are all 95% mortgages part of the scheme?

No. While several lenders take part in the mortgage guarantee scheme, many also offer 95% LTV mortgages outside this initiative.

Pros and cons of the Mortgage Guarantee Scheme

Advantages

• Low deposit: You can buy a home with just a 5% deposit, which can reduce the upfront cost.
• Faster homeownership: It can help you buy now rather than waiting to save a bigger deposit.
• Accessibility: Mortgages are available to various buyers, including first time buyers, home movers and remortgage borrowers.
• Incentives: Some lenders offer incentives like cashback upon completion.

Disadvantages

• Higher interest rates: Interest rates are usually higher on 95% mortgages than on mortgages with a lower LTV.
• Higher monthly repayments: Your monthly mortgage repayments will be higher compared to a mortgage with a lower LTV.
• Risk of negative equity: If property prices fall, you could end up owing more than what the home is worth.

Should I buy with a 5% deposit or keep saving?

The bigger your deposit, the wider the range of mortgage products you’ll be able to choose from. Lenders typically offer their most competitive rates to those with a larger deposit, so the more you can afford to put down, the lower your rate should be and the less interest you’ll pay overall.

It will also depend on the amount you can borrow and whether it will be enough to meet the required purchase price when combined with your deposit.

If you’re still building your deposit, check out these saving strategies for practical tips to help you reach your goal.

Next steps

If you have any questions about 5% deposit mortgages for first time buyers, please get in touch with our independent mortgage advisors, Censeo.

When you’re ready to start your homeownership journey, explore the first time buyer homes we have for sale in Croydon, Finchley, Harrow and Walthamstow. And remember to create a My Pocket account to register your interest and receive the latest updates on Pocket homes.