How the scheme works
The mortgage guarantee scheme does not lend you money or top up your deposit. Instead, it works behind the scenes between the government and lenders. The government offers banks and building societies a guarantee covering a portion of any losses on the higher-risk slice of a 95% mortgage.
Because that guarantee reduces the lender's exposure if a borrower defaults and the property is repossessed at a loss, lenders are more willing to offer mortgages to people with only a 5% deposit. From your point of view as a borrower, it is an ordinary mortgage; the guarantee sits between the lender and the government.
The scheme has been re-launched and extended at various points, so the exact end date and terms can change. Always check the current rules and the deals actually available, because the scheme is one route to a 95% mortgage rather than the only one.
Mortgage guarantee scheme at a glance
The typical eligibility criteria, which can change between versions of the scheme.
| Criterion | Typical requirement |
|---|---|
| Deposit | At least 5% of the purchase price |
| Property value | Up to £600,000 |
| Buyer type | First-time buyers and home movers |
| Property use | Your own main residence, not buy-to-let |
| Mortgage type | Capital repayment, not interest-only |
| Second homes | Not eligible |
Confirm the current cap and criteria, as the scheme's terms are periodically revised.
How deposit size affects your mortgage
A larger deposit usually unlocks lower rates. These figures are illustrative.
| Deposit | Loan-to-value | Typical rate impact |
|---|---|---|
| 5% | 95% LTV | Highest rates of the mainstream tiers |
| 10% | 90% LTV | Noticeably better than 95% |
| 15% | 85% LTV | Better again, wider choice of deals |
| 25%+ | 75% LTV or lower | Among the lowest rates available |
Every step down in loan-to-value tends to improve the rates and choice on offer.
Pros and cons of a 95% mortgage
Weigh the benefits against the trade-offs:
- Pro: you can buy with just a 5% deposit instead of waiting years to save more.
- Pro: it is open to movers as well as first-time buyers.
- Pro: you start building equity and stop paying rent sooner.
- Con: interest rates are usually higher than larger-deposit deals.
- Con: monthly payments and total interest are higher.
- Con: less equity means more exposure to falling prices and negative equity.
It is not the only way to get a 95% mortgage
Many lenders offer 95% mortgages outside the scheme, and there are other low-deposit routes such as guarantor and family-assist mortgages. A broker can compare scheme and non-scheme 95% deals to find the cheapest overall option for you.
Mind the negative equity risk
With only 5% equity, even a small fall in house prices can leave you owing more than the home is worth. That can make it hard to remortgage or move. Consider how long you plan to stay and whether you could cope if prices dipped before deciding on a 95% deal.