How loan-to-value shapes your mortgage
Loan-to-value (LTV) is the size of your mortgage as a percentage of the property price. A 5% deposit means a 95% LTV mortgage, meaning you borrow 95% of the value. The higher the LTV, the more risk the lender takes, so they charge a higher interest rate to compensate.
This is why deposit size matters so much. Rates tend to step down at key thresholds, particularly at 90%, 85%, 75% and 60% LTV. Pushing your deposit from 5% to 10% can move you into a cheaper band and noticeably lower your monthly payments over the life of the loan.
How deposit size affects your mortgage
Illustrative only, rates change constantly, but the pattern holds: more deposit, cheaper borrowing.
| Deposit | Loan-to-value | Typical rate level | Negative equity risk |
|---|---|---|---|
| 0% | 100% | Highest, specialist only | Highest |
| 5% | 95% | High | High |
| 10% | 90% | Moderate | Moderate |
| 15% | 85% | Lower | Lower |
| 25%+ | 75% or less | Lowest mainstream rates | Low |
Even a small increase in deposit can move you into a cheaper rate band.
Types of low deposit mortgage
- 95% mortgages, a 5% deposit, widely available to first-time buyers and home movers.
- Mortgage guarantee scheme deals, where the government backs part of the lender's risk on high-LTV loans.
- Guarantor and joint borrower sole proprietor mortgages, where a family member supports your application.
- Deposit-free (100%) mortgages, rare and usually needing a family member's savings or property as security.
- Shared ownership, where you buy a share and need a deposit only on that share.
Pros and cons of a low deposit
| Advantages | Disadvantages |
|---|---|
| Buy sooner, less time saving | Higher interest rates |
| Get on the ladder while renting | Larger monthly payments |
| Keep some savings as a buffer | Greater risk of negative equity |
| Stop paying rent earlier | Stricter affordability and credit checks |
Mind the negative equity risk
With a small deposit, even a modest fall in house prices can leave you owing more than the home is worth. That makes remortgaging or selling harder, so think about how long you plan to stay before buying with 5%.
How to improve your chances of approval
1. Check and build your credit
Register to vote, clear small debts and avoid new credit before applying.
2. Keep accounts tidy
Lenders scrutinise spending on high-LTV loans, so avoid overdrafts and missed payments.
3. Save a little more
Reaching 10% opens up more deals and lower rates than 5%.
4. Use a broker
A broker knows which lenders are comfortable with high-LTV lending and your circumstances.
5. Consider scheme support
Explore the mortgage guarantee scheme, guarantor options or shared ownership.