A 5% deposit can be enough to buy, thanks to 95% loan-to-value mortgages and the government's Mortgage Guarantee Scheme. Here is how the scheme works, how lenders assess affordability, and what a small deposit costs you over the life of the mortgage.
What the Mortgage Guarantee Scheme Is
The Mortgage Guarantee Scheme was launched by the government in April 2021 to encourage lenders back into low-deposit lending after many withdrew 90%+ loan-to-value products during the pandemic. Under the scheme, the government provides participating lenders with a guarantee covering part of their losses on qualifying 91-95% loan-to-value mortgages, in exchange for a fee paid by the lender. It has been extended more than once, and the low-deposit mortgage market has since largely normalised, so check gov.uk or a current mortgage comparison source for the scheme's live status and end date.
How to Access a 95% Mortgage
You do not apply to the government scheme directly -- you apply for a 95% loan-to-value mortgage through a participating lender or a mortgage broker in the normal way, and the guarantee (where it applies to that specific product) operates behind the scenes between the lender and the government. As the market has recovered, the majority of 95% mortgages available today are funded entirely by the lender on a commercial basis rather than being scheme-backed, and this distinction generally makes no practical difference to the borrower -- focus on comparing the rate, fees and terms on offer.
How Affordability Is Assessed
The same core affordability checks apply as for any mortgage: your income, existing debts and regular outgoings, credit history, and a stress test of whether you could still afford the repayments if interest rates rose. Because there is less of a buffer at 95% loan-to-value, some lenders apply tighter loan-to-income limits or scrutinise discretionary spending more closely on their highest loan-to-value products, and product choice at 95% is generally narrower than at 90% or 85% loan-to-value.
The Trade-Offs of a Small Deposit
Interest rates on 95% mortgages are typically higher than on lower loan-to-value deals, reflecting the additional risk the lender is taking on, so monthly payments and the total interest paid over the mortgage term are usually higher than an equivalent loan with a bigger deposit. A small deposit also leaves a thin equity cushion, which means even a modest fall in property values could tip you into negative equity, potentially limiting your options to remortgage onto a better rate or move home without covering a shortfall from savings.
Combining With Other Schemes
A 95% mortgage can often be combined with other support, such as the government bonus from a Lifetime ISA or a legacy Help to Buy ISA, provided you meet each scheme's own conditions and the lender's criteria. Some housebuilders also run their own deposit-boosting or rate-reduction incentives on selected new-build developments, which is separate from the government Mortgage Guarantee Scheme, so always check exactly which support applies to a specific property and lender before relying on it in your budget.
Frequently Asked Questions
What is the Mortgage Guarantee Scheme?
The Mortgage Guarantee Scheme was a government scheme, launched in April 2021, under which the government provided lenders with a guarantee covering part of the losses on qualifying 91-95% loan-to-value mortgages, encouraging lenders back into low-deposit lending after many withdrew such products during the pandemic. It was extended more than once and is intended to run its course as the low-deposit mortgage market has recovered on a purely commercial basis.
Do I need to apply for the government scheme separately?
No -- the guarantee, where it still applies, sits behind the scenes between the lender and the government. As a borrower you simply apply for a 95% mortgage in the normal way through a participating lender or broker; you do not make a separate application to any government body, and the guarantee does not change the deposit, income, or affordability requirements the lender applies to you.
Are all 95% mortgages part of the government scheme?
No. As the mortgage market has stabilised, most lenders now offer 95% loan-to-value mortgages on a purely commercial basis, funded entirely by the lender rather than backed by the government guarantee. Whether a specific deal happens to be scheme-backed generally makes no practical difference to you as a borrower -- what matters is the rate, fees and terms of the mortgage itself, so compare deals on those factors rather than on scheme status.
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How is affordability assessed on a 95% mortgage?
Lenders apply the same core checks as for any mortgage -- income, existing debts and outgoings, credit history, and a stress test of your ability to afford the mortgage if interest rates were higher -- but the margin for error is smaller at 95% loan-to-value because you are borrowing a larger multiple of the property's value. Lenders may apply tighter loan-to-income caps or extra scrutiny of your outgoings on high loan-to-value products compared with a mortgage at 75% or 60% loan-to-value.
What are the downsides of a 95% mortgage compared with a bigger deposit?
Interest rates on 95% mortgages are typically higher than on lower loan-to-value products, since the lender is taking on more risk, so your monthly payments and total interest cost are usually higher than an equivalent mortgage with a larger deposit. You also have a much smaller equity buffer, which means a fall in property prices could more easily leave you in negative equity, potentially making it harder to remortgage or sell without funding a shortfall.
Can I use a 95% mortgage with the Lifetime ISA or Help to Buy ISA bonus?
Yes -- the government bonus from a Lifetime ISA or a legacy Help to Buy ISA can generally be used towards your deposit and combined with a 95% mortgage, provided you meet the individual scheme rules (such as the Lifetime ISA purchase price cap) and the lender's own criteria. Speak to your mortgage adviser or broker about timing, since bonus payments are usually released on completion rather than being available upfront.
Do 95% mortgages exist for new-build properties?
Some lenders restrict their highest loan-to-value deals, or apply extra conditions, on new-build houses and especially new-build flats, reflecting the historically higher risk of new-build valuations falling shortly after purchase. Separately, some housebuilders operate their own deposit-boosting or rate-reduction schemes on selected developments, which is different from the government Mortgage Guarantee Scheme and worth asking about directly if you are buying new-build.
Disclaimer: This is general information, not personalised mortgage or financial advice. Mortgage products, rates and scheme availability change frequently. Check current gov.uk guidance and speak to a qualified mortgage adviser before applying.
