5% Deposit – The Mortgage Guarantee Scheme

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Are you feeling fed-up because you’re struggling to buy a home with the small deposit you’ve saved up?  Well it’s time to cheer up and get moving. Thanks to the new Mortgage Guarantee Scheme announced in the Spring 2021 Budget, 5% deposit mortgages are back on the market.

What is the Mortgage Guarantee Scheme?

The 5% Deposit Mortgage Guarantee Scheme was launched by the Government in April 2021 to stimulate home buying during the Coronavirus Pandemic. It guarantees 95% mortgages for buyers with small deposits.

So lenders offering the mortgages will be compensated if borrowers default on repayments.  Now more and more lenders are signing up to the Scheme.

It’s designed to encourage banks and building societies to bring back the 95% mortgage products they withdrew when the Coronavirus Pandemic struck. Mortgage lenders had to do this to lower their risk because of job losses and income uncertainty as many businesses ceased trading during the pandemic.

In fact, the 5% deposit mortgage all but disappeared, leaving just three remaining out of 391 products in the space of just one year. The launch of the new Scheme in April 2021 means Lenders can now feel confident about putting their 95% LTV mortgages back on the market.

The Government hopes the Scheme will rev-up the housing market and make buying a home more attainable for First Time Buyers. It also wants ready-to-move homeowners to benefit, so they can free up starter home stock for First Time Buyers and ease the property bottleneck.

The Scheme works by:

  • keeping things simple for borrowers so they can buy properties easily
  • Ensuring responsible lending that’s quick for lenders to set up and easy to administer

Who Can Apply And What Are The Rules?

The Scheme is available to First Time Buyers and Homemovers who live in the UK and have a good credit record. You must pass the standard affordability checks including loan-to-income tests and credit score assessment, to be accepted.

Only residential properties are eligible and you must live in the mortgaged property yourself.  Buy to Let properties and second homes are not part of the Scheme. You can choose a new-build or existing property provided it’s value is £600,000 or less. 

You must take out the mortgage as an individual (or individuals), not through a limited company.  Also. only repayment mortgages qualify – Interest only mortgages are not permitted.

All lenders operating under the Scheme have to offer five-year fixed rate mortgages.  As a borrower this gives you longer term financial certainty because monthly repayments stay the same.

The mortgage must be between 91% and 95% of the total property’s value. So your deposit will need to be between 5% and 9%.

You can apply for one of the mortgages between 1 April 2021 and 31 December 2022 offered by lenders belonging to the Scheme.  Mortgages must originate between these dates.

To increase your chances of qualifying for a 5% deposit mortgage, we recommend talking to an experienced Mortgage Broker like Vivid Mortgages. 

What Does 95% LTV Mortgage Mean?

LTV or to use it’s correct term Loan To Value, means you borrow that maximum up to the deposit allowance set by the lender.  95% LTV means you would borrow 95% of what the house is sold for, paying just 5% of the deposit.

So if you are buying a £400,000 house, you would take out a loan for £380,000.  You would need to find £20,000 for the deposit.

How Much Can I borrow?

Most mortgage lenders will calculate the amount you can borrow based on your total household income multiplied by four or five. You can use a mortgage calculator to find out how much deposit you will need to put down.

House prices across the UK vary dramatically depending on where you want to live. There are affordability options you can choose. 

For example, if you need to live in London, shared ownership may help you buy a 25% stake in a property. You would then pay the remaining 75% as rent. 

However this option should be thoroughly explored using an experienced Mortgage Broker like Vivid Mortgages.

Do I need a good credit history for a 95% LTV Mortgage?

Yes, lenders offering the Mortgage Guarantee Scheme cannot be incentivised for irresponsible lending. This means your credit record must show you are a trustworthy borrower.

How do I improve my credit rating?

If your credit rating hasn’t been perfect over the years, you need to know what’s on your file.  If you have some late payments flagged by creditors, we advise getting in touch with them and arrange settlement ASAP.  Also make sure your name and address is correct on the Electoral Roll – as lenders always check this to verify your ID.

What other fees will I need to pay?

Stamp duty is always charged when you buy a property.  To help the property market get back on its feet, the Government is charging 0% on the price of properties up to £500,000 until 30 June 2021.

It will then charge 0% up to £250,000 up to 30 September 2021.  From 1 October 2021 0% Stamp Duty will be charged up to properties worth £125,000, so buyers will be charged from 2% to 12% on properties costing more than that.

Other fees you will pay include Conveyancing fees and searches and surveys via your chosen solicitor and lenders.  Lenders will also encourage you to have life insurance as protection.

How can Vivid Mortgages Help?

At Vivid Mortgages you’ll talk to real people who understand how worrying applying for a mortgage can be.  We have more than 30 years’ experience of helping single people, couples and families achieve their dream of owning their own property.

We base our mortgage advice service on simplifying everything for you, to make the whole mortgage search and application process an easy and stress free experience.

As you would expect, we’re authorised and regulated by the Financial Conduct Authority (FCA).  This means we’re qualified to advise you and help you find the right mortgage. 

We’re also independent, which means we have access to a wide range of lenders that are offering mortgages under the new 5% deposit Mortgage Guarantee Scheme.

Here’s how we’ll help you buy a home:

  • Discuss the type of property you’re looking to buy
  • Help you calculate how much you need to borrow
  • Save you time by researching the lenders offering 95% mortgages for you
  • Shortlist mortgage lenders offering the most competitive interest rates
  • Check terms and conditions and simplify the financial jargon for you
  • Compile and complete all the paperwork for you 
  • Submit your application to the mortgage lender that ticks all your boxes
  • Manage the mortgage application process and liaise with the lender on your behalf


All you need to do now is call us or send an email to arrange an appointment at a time that suits you.

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