Low Deposit Mortgages
Looking for a mortgage but only have a low deposit? It can be possible! Find out all of the options available to you, and what to do next, in our in-depth guide!
Firstly, where is your deposit likely to come from?
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Author: Pete Mugleston - Mortgage Expert, MD
Updated: March 21, 2022
Generally speaking, it’s best to put as much of a mortgage deposit down as you can afford in order to be considered low risk and unlock better interest rates, but what happens if you can’t raise a large sum?
While low deposit payments certainly come with drawbacks, they could be worth facing if they lead to a foot on the property ladder or buying your dream home.
This guide outlines how to get a mortgage with a low deposit, what obstacles you might have to overcome, what help is in place, and how working with a specialist broker could be key.
The following topics are covered below...
What is the lowest possible mortgage deposit that lenders accept?
Based on a residential repayment mortgage, the lowest deposit requirement out there is 5% of the purchase price of the property. The fact that a desirable deposit would be at least 20-25% for most lenders, there are still hoops to jump through for these low down payments.
They are available for the right applicants, however there are more options open if you can only manage a deposit of 10%.
Lenders will need to be satisfied that you’ll be able to afford the monthly mortgage repayments, which will likely be higher due to steeper interest rates and extra charges, so you will be deemed higher risk.
This means that seeking professional advice before you apply is recommended.
Work out your loan-to-value (LTV)
You can use our calculator to work out the LTV on the property you’re looking to purchase. The lower the deposit, the higher your LTV will be.
This may reduce the number of lenders willing to consider your application. However, a broker will be able to help you identify those who will be able to help.
This calculator will tell you what your loan-to-value (LTV) ratio is, based on the property's value, your deposit/equity and the amount you're borrowing.
Your LTV is
This means that most mortgage providers will consider your deposit amount to be more than satisfactory, but speaking to a broker is still recommended to ensure you get the best deal.
This means you’re likely to meet the deposit requirements at most lenders, but since many reserve their best rates for those with higher deposits, speaking to a broker is recommended.
Many mainstream mortgage providers would consider this high and be reluctant to lend. Applying through a mortgage broker may be necessary to find a specialist low deposit mortgage lender.
LTVs have a direct impact on the rates available to you - speak to a mortgage broker and find out how to get the best deal based on your ratio.
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What type of help is available?
Any help towards reaching home ownership was largely reserved for first-time buyers, however the government has recognised that more must be done to stimulate transactions across the market.
Allowing low deposit mortgages is one of the ways this is happening and there are a number of schemes that give this opportunity.
It’s worth remembering that these have a set of eligibility criteria, and you should check with an expert as to whether these are the best option for you.
In some instances, 90-95% mortgages might offer better interest rates than are available via the following schemes:
Mortgage guarantee scheme
Following the outbreak of Covid-19 and a reduction of high loan-to-value mortgages on offer, the UK Government launched this scheme in April 2021.
It provides security for participating mortgage lenders, encouraging them to offer 90-95% loans.
The lenders would be compensated by the treasury for a portion of their losses, should the need arise.
This scheme is only available until December 2022 and for properties worth less than £600,000.
Some lenders will have their own criteria in place, such as ruling out self-employed applicants, and stipulating that the mortgage is not for second homes, new builds, flats or buy-to-let properties.
The scheme is available for both first-time buyers and house movers.
Often the only way to secure a mortgage without a deposit, guarantor mortgages allow people who wouldn’t usually qualify for a mortgage the chance to buy a home with the help of a family member or friend.
Essentially a close family member or friend agrees to be legally liable for the loan should you default, offering security to the lender.
If you have any of your own funds to put down in addition to the guarantor security, this could mean that you qualify for a superior interest rate.
Shared Ownership scheme
Aimed at first-time buyers who can’t afford to purchase 100% of a property in the traditional way, this scheme allows a way onto the property ladder by sharing ownership with the government or a local housing association, with you owning between 10% and 75% of your home and paying rent on the remaining share.
It involves both a lower mortgage and deposit, the minimum of which is 5% of your share value in the home.
To be eligible, your household income must be lower than £80,000 (£90,000 in London) and it might also be open to you if you once owned a home but can’t afford one now.
What are the risks of low deposit mortgages?
If you don’t initially pay a substantial sum by way of a deposit into your home and then the housing market crashes, you would run the risk of your property going into negative equity (when your home is worth less than your mortgage).
This could make remortgaging when your fixed term comes to an end, or selling up, very difficult. Essentially you would owe more on your home than the amount you could get for it.
How a broker can help
With such radical changes in the economy, the housing market and government backing in recent times, getting professional guidance from someone who understands the whole industry can be a real lifeline.
Working with a broker who specialises in low-deposit mortgages means you will be more likely to qualify for the right package for you, thanks to knowledge and expertise of the application process and eligibility protocols.
The right broker will be an expert in all of the schemes and mortgage deals available to customers with limited deposit and can help you choose the right deal.
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Circumstances that might reduce deposit requirements
There are ways you can reduce the amount of deposit you need to put down.
Speak to a broker about whether the following could be a good fit for you…
- Concessionary purchases: Buying a home for less than its market value (for example, a family members’ property)
- Landlord gift/discount: Buying a property from a landlord at a reduced price, which can then turn into a deposit
- Developer gift/discount: Buying a new build property with the deposit ‘gifted’ by the developer as an incentive to buy
- Family discount: When a family member uses equity in their own home to release and gift the deposit amount
- Optimising your credit report: If you have a bad credit history, there’s a chance you might need to put down a lower deposit after the issue has been resolved or after it has been
removed from your file. If you’re not in a position to delay your plans or pay off debts, don’t panic. There are low deposit options for customers with a bad credit profile.
Qualifying depends on whether you’re applying for a scheme directly with a provider or going straight to a lender, as each has their own set of criteria – see our section on the type of help available for a rundown of the requirements for each scheme.
On top of each set of criteria though, you will need to prove…
- Affordability: The lower your deposit, the higher your loan will be, which means that being able to afford the higher repayments that come with it is vital. Your loan-to-income ratio for borrowing may be set by a lender, however you must be able to prove that you can comfortably pay off your debt consistently.
- The health of your credit history: Your behaviour around financial responsibility in the past will also tell the lender what kind of borrower you are. The more steadfast your credit score, the more options will be open to you.
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Getting the right advice from a broker who specialises in low deposit mortgages
If you’re about to begin the process of applying for a mortgage with a low deposit, the brokers we work with can start supporting you through the application process and help you to overcome any obstacles you might encounter.
Our matching service ensures the right expert for your unique criteria as we handpick them to suit your exact needs, so call us on 0808 189 0463 or make an enquiry online for a free, no-obligation initial call with a broker who specialises in low deposit mortgages today.
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Not usually. You would typically need a higher-than-average deposit for this kind of mortgage, not less. That said, there may be options out there if your affordability circumstances are particularly attractive.
Yes, you should be able to, and sometimes the discount you’ll receive when you buy a council house can be used towards a deposit, but not always.
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Mortgage Expert, MD
About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!