5% Deposit Mortgage
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5% Deposit Mortgage
Sam Hubbard talks to us about getting a mortgage with a 5% deposit.
Can I get a mortgage with a 5% deposit?
Yes, it’s possible. Most lenders will require at least a 5% deposit as a baseline, although there are a couple of exceptions.
For instance, one bank recently announced a scheme allowing buyers to secure a property worth up to £500,000 with as little as a £5,000 deposit [podcast recorded in February 2025]. Those schemes are very few and far between, though, so typically 5% is where we need to be.
Lenders assess risk when deciding on rates and approval, and borrowing 95% of a property’s value represents a higher risk to a lender. They will always want to ensure that firstly, the loan is affordable, and secondly, the credit profile of the individuals applying for the mortgage are in good shape, with no recent issues.
Thirdly, the property needs to offer sufficient security, i.e. it’s structurally sound and isn’t likely to lose value.
What type of property can you buy with a 5% deposit mortgage?
The good news is that most properties are eligible for a 5% deposit mortgage. That said, there can be restrictions at this particular Loan to Value.
For example, new build flats and sometimes new build houses may be more difficult to get at 95%. Flats certainly are more difficult and may not qualify with all lenders.
Interestingly, on that scheme with the £5,000 deposit, the lender has just made changes this week to now target First Time Buyers purchasing flats. It is expanding the opportunities for hopeful homebuyers [podcast recorded in February 2025].
Who is eligible for a mortgage with a 5% deposit? Can anyone use a 5% deposit?
In the main, both First Time Buyers and home movers can use a 5% deposit to buy their primary residence. However, as always there are a couple of exceptions. For example, Buy to Let properties typically require a much larger deposit, where most lenders want at least 25% as a minimum.
Additionally, 5% deposit mortgages are usually only available on a capital repayment basis – you can’t get them on interest only generally or for business purposes.
To qualify generally for 95%, you’ll need to firstly pass the lender’s standard affordability checks at that particular Loan to Value, and be purchasing the property as your main residence, not as an investment property.
You need to be applying for the mortgage as an individual or individuals, not as a business or partnership.
What is the process of applying for a mortgage with a 5% deposit?
The process is broadly similar when applying for any mortgage, but a strong credit profile becomes especially important when your deposit is smaller. At 5%, it needs to be stronger than if you were borrowing at 75%.
In terms of the process, it’s best to be prepared. Before you start viewing properties, speak with a broker to establish your maximum borrowing capacity, and obtain a mortgage Agreement in Principle (AIP).
Secondly, position yourself as a strong buyer. Let estate agents know you’re a First Time Buyer, that you’ve got no chain, you’ve done your homework and are working with a broker – so you know what your affordability is. You’ve got your AIP and your deposit. That strengthens your position as a buyer.
Thirdly, get organised – get your documents together. You’ll need proof of ID with a passport or driving licence, so make sure they’re in date. For proof of address you need utility bills or credit card statements to prove where you live – they need to be dated within the last couple of months.
Can you prove where your deposit is coming from? Is it in a savings account or an ISA? You need to show it’s there. We often see gifted deposits from family, and that’s perfectly viable. There just needs to be an audit trail showing where that money has come from, and ID checks for the person gifting it. You may also need a gift letter to help prove where the funds are coming from.
For proof of your income, we need your pay slips or tax returns if you’re self-employed. It’s important to understand additional costs and we can help clients with this. It includes things like budgeting for stamp duty, legal fees, and lender fees associated with the purchase.
Whilst you’re looking for property, it’s really important to keep your credit profile in good shape. Just because you had an AIP done, it doesn’t mean you can just let it all go. You need to avoid any missed payments, defaults or county court judgements and keep everything nice and clean.
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What government mortgage schemes are available with a 5% deposit?
These do change and hopefully we may soon see some new incentives and schemes coming to market. Schemes are primarily there to provide a boost for buyers, especially those with smaller deposits.
At the moment, this includes the First Home scheme. This discounts homes by 30% to 50% below the market value. Also, for eligible First Time Buyers there’s the lifetime ISA. This offers a 25% bonus on savings of up to £1,000 a year. Effectively the government is giving back a potential extra £250 for each £1,000 you put in.
Many people will have heard about shared ownership schemes, where you can buy a share of a property. You might buy 50% and then pay rent on the additional 50%. It’s a stepping stone to get people onto the housing ladder.
The Mortgage Guarantee Scheme is hidden behind the scenes to some degree, but it supports lenders to offer up to 95% mortgage. Effectively the government helps lower the risk so that lenders are more prepared to lend a higher Loan to Value.
Since government schemes frequently change, always check with your broker for the latest options and anything new.
Do all lenders offer 5% deposit mortgages?
No, not all lenders do and a lot of it comes down to their appetite. Minimum deposit requirements do vary by lender and, equally, the type of property you might want to buy could impact the eligibility.
Some lenders won’t lend 95% on a new build flat, for instance. However, most non-new build residential properties will fit 5% criteria. The important factors here are your income, your credit score and your financial stability – all those will influence the size of deposit required.
Somebody’s profile or credit score might not meet 95% borrowing requirements, but a lot of lenders ‘cascade’. They might not lend at 95% but if we could find another 5% they might lend to you at 90%.
Working with professional brokers really helps find the sweet spot of what can be achieved for a First Time Buyer.
Can I remortgage with a 5% deposit?
It is possible. Again, it depends on the lender’s criteria. First and foremost, the loan must achieve the lender’s affordability requirements. At 95%, you’re likely to pay higher interest rates back to a lender due to the higher risk. So rates won’t be quite as competitive at 95% as they would, for instance, at 90% or 85%.
There’s also a negative equity risk. We always think about UK house prices increasing, and at the moment they are, but at times we do see slight decreases in prices. With negative equity and a 95% Loan to Value mortgage, the lender and mortgage holder are more exposed to property price fluctuations. It will depend on the type of property and where it is.
There can be debt consolidation restrictions, as most lenders won’t allow debt consolidation with a 95% remortgage. So if you’re trying to remortgage to raise funds to pay off a credit card or a bank loan, they typically wouldn’t do that at 95%.
We’ve recorded a separate episode on remortgaging, which might be worth a listen.
What credit score is needed for a 5% deposit mortgage?
As we’ve alluded to, the credit score plays a critical role in securing a 5% deposit mortgage. This isn’t looking at whether you have a score of 999 out of 1000 – it’s looking at the detail behind that.
These loans represent a higher risk for lenders, because they’re lending more of the value of the property, so they want to see a solid credit history. A good credit score will significantly boost your chances of approval.
You can expect higher interest rates compared to mortgages with a lower Loan to Value. You will pay more at 95%, but the bigger your deposit, the less interest you’ll be paying.
Options may be limited as not all lenders offer 95% mortgages. A tip here is to check your credit report before applying, address any inaccuracies there and continue to work on improving your score if needed.
How can a mortgage broker help? Is there anything else we need to know?
A broker can be your biggest ally, especially when navigating 5% deposit mortgages. First of all, we determine your individual borrowing limits and provide you with all the costs involved.
We research the whole market of lenders to find the best solutions and answer your questions. We help secure a mortgage Agreement in Principle with the most cost effective lender whose criteria you meet. We assist with the application process and do all the liaising on the customer’s behalf.
We’ll also offer guidance on credit issues and affordability. If somebody’s got a particular credit problem, we guide them in the right direction. If it isn’t feasible now, it could be very soon if steps are taken to improve matters.
Working with a trusty broker saves time, reduces stress and will improve the chances of securing the right mortgage for your requirements.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
