Return of the 5% Deposit Mortgage: Tips for First-Time Buyers

The return of 95% LTV mortgages is likely to come as welcome news for millions of prospective homebuyers. Across the UK, first-time buyers have found themselves increasingly priced out of the market; this is due to the excessive deposit requirements of most major lenders.

This month, several major banks confirmed their intent to take part in a new UK government mortgage guarantee scheme, enabling them to offer 5% deposit mortgages for the first time in years. Barclays, HSBC, NatWest, and others are all set to begin offering 95% LTV mortgages once again, enabling applicants to qualify with a deposit of just 5%.

How much is a 5% mortgage in real terms?

Saving for a 5% mortgage can vary in difficulty depending on your situation and location. A 5% down payment on a home in Yorkshire and the Humber currently averages around £9,250. This increases to just over £14,000 in East Anglia, £18,000 in the south-east of England, and around £29,000 in London.

Buyers in Wales and Scotland can expect to pay just under £9,000 as a 5% deposit, with Northern Ireland falling to around £7,400.

Affordability will therefore be determined primarily by location as well as your savings and income. In most instances, buyers will still find themselves needing to save thousands to cover both the 5% down payment requirement and the various fees associated with setting up a home loan.

Administration fees, valuation fees, and legal fees are costs that can often add up to a further 1%–2% of the property’s market value.

Tips and guidelines for savers

Representatives of several major banks and lenders have been offering their own tips and guidelines for savers looking to reach the new 5% deposit threshold and take their first step up the property ladder.

While there are no quick-fix shortcuts to amassing considerable sums of money, these tips from lenders offer guidance for people serious about buying their own home.

Carefully consider your financial health

This means taking an in-depth look at your outgoings, lifestyle, income, and debts. If there are any expenses you can curb (or eliminate) or smaller debts you can afford to pay off, it may be better to do so before considering taking on debt.

Set up a dedicated savings account

Put all the money you are saving for your deposit into a dedicated savings account. Separate your finances strategically rather than pooling everything into one collective account.

Set realistic goals

Staying motivated is the key to reaching major savings targets. It is important to be realistic in terms of when you can expect to accumulate the funds required. If it is going to take you several years to save for a deposit, then you must set goals and acquire funds accordingly.

Consult with an independent broker

Last but not least, consulting with an independent broker is a useful way of gauging affordability while also getting to know the new 95% LTV options that are available.