Buying a Home with a Small Deposit: Your Options Explained
Saving a deposit is often the single biggest hurdle between renting and home ownership. If you’re a first-time buyer wondering how to buy a home without years of saving, or a home mover trying to get back onto the property ladder, there are more options available today than most people realise. Between the mortgage guarantee scheme, shared ownership and various other ownership schemes listed on gov.uk, a small deposit mortgage is more achievable than it looks. This article explains your options and how Eden Hawk can help you find the most suitable lender.
What Counts as a Low Deposit Mortgage?
A low deposit mortgage is generally any mortgage where you put down less than 10% of the property’s value, sometimes as little as 5%, or in rare cases none at all. A standard mortgage from a mainstream lender typically asks for a bigger deposit, but a growing number of lenders now offer this type of mortgage to eligible first-time buyers and existing borrowers. The trade-off is usually a slightly higher interest rate on an interest-only or repayment mortgage, since a smaller deposit means more risk for the lender if a borrower’s home were ever repossessed. Even so, for many people who want to stop paying rent to a landlord, a low deposit mortgage may be the fastest way onto the housing ladder.
The Mortgage Guarantee Scheme
The mortgage guarantee scheme works by encouraging lenders to offer 95% loan-to-value mortgages. The government guarantees part of the loan, making it easier to get a mortgage with just a 5% deposit. It isn’t a zero-deposit mortgage, but it’s one of the most accessible government-backed mortgage schemes for first-time buyers and home movers, provided you meet the eligibility criteria and the purchase price falls within local price limits.
Shared Ownership: Buying a Share of Your First Home Through a Housing Association
Shared ownership allows eligible buyers to purchase a share of a property and pay rent on the remaining share. The minimum share available will depend on the scheme and property. You only need a mortgage for your share of the property; the initial mortgage and the deposit you pay are both smaller than for a normal mortgage on the full purchase price. It’s a practical route onto the property ladder for buyers who can’t yet afford a mortgage on the whole home. However, a solicitor and independent financial advice are worth arranging before you commit.
Saving Towards a Deposit Mortgage With a Lifetime ISA
A Lifetime ISA is a savings account designed to help eligible first-time buyers build a deposit faster: the government adds a 25% bonus on top of what you save, up to certain limits. Pairing an ISA with disciplined saving can shrink the time it takes to move from paying rent to holding the keys to your first home, and some buyers combine their savings with an equity loan or family gift towards the deposit.
You will incur a lifetime ISA government withdrawal charge (currently 25%) if you transfer the funds to a different ISA or withdraw the funds before age 60, and you may therefore get back less than you paid into a lifetime ISA. By saving in a lifetime ISA instead of enrolling in, or contributing to, an auto-enrolment pension scheme, occupational pension scheme, or personal pension scheme: you may lose the benefit of contributions from your employer (if any) to that scheme your current and future entitlement to means tested benefits (if any) may be affected.
Finding the Right Lender for First-Time Buyers
Not every mortgage lender offers the same mortgage schemes, and criteria for a low deposit mortgage vary widely. Some lenders offer a track record mortgage, which lets renters with a strong payment history buy a home without a deposit, based on rental history rather than savings, providing a way to buy without a deposit. Others focus on guarantor mortgages, or a standard mortgage with more flexible affordability rules. A mortgage broker regulated by the Financial Conduct Authority can compare mortgages available across the market, explain your likely mortgage term and monthly mortgage payments and help you pay a deposit that suits your budget rather than the lender’s default.
How Eden Hawk Can Help You Buy a Home
At Eden Hawk, we specialise in matching first-time buyers and home movers with the ownership schemes and lenders best suited to their circumstances, whether it’s the mortgage guarantee scheme, shared ownership, or a standard mortgage. We offer mortgage advice from across the whole of the market, so we can compare deals available and help you understand the true value of the property you’re buying before an estate agent accepts an offer. If a small deposit has been holding you back from buying a house, get in touch with Eden Hawk today.
Deposit Mortgage FAQs
Can I get a mortgage with a small deposit? Yes. Between the mortgage guarantee scheme, shared ownership, and specialist low deposit mortgages, many first-time buyers have workable options.
Do I need a deposit at all? Not always. Some lenders now offer ways to buy a home without a deposit, based on rental history instead.
Is shared ownership the same as a normal mortgage? No. You buy a share of the property and pay rent on the remainder to a housing association, so your borrowing is smaller than a standard mortgage on the full home.
Should I speak to a mortgage broker? Yes. A broker can explain eligibility criteria, compare lenders, and help you avoid applying for schemes you don’t qualify for.