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Banks launch new government-backed mortgage guarantee scheme to help buyers with 5% deposits

A new government-backed mortgage scheme that will allow future homeowners to secure mortgages with a 5% deposit is being made available across a number of high street banks from today.

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Picture: Getty
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A number of high street banks across the UK will today start offering mortgages with just a 5% deposit #UKhousing

The scheme, which was announced at the Spring Budget, will allow first-time buyers and current homeowners to secure a mortgage with just a 5% deposit to buy a house worth up to £600,000.

The government will provide lenders with the guarantee they need to cover the remaining 95% subject to prospective buyers passing affordability checks.

This means the government will compensate the mortgage lender for a portion of the net losses suffered in the event of repossession.

The guarantee would secure 95% of the purchase value above 80%, and will be valid for up to seven years after the mortgage is originated.

So for example, if a property was worth £300,000, the lender would not have a guarantee for the first 80% of the property value, in this case £240,000. However, it would provide a guarantee for 95% of the remaining £45,000, 15% of the property value. The buyer will be covering the remaining 5%.


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Lloyds, Santander, Barclays, HSBC and NatWest are all launching mortgages under the scheme today, with Virgin Money expected to follow next month.

The government said the scheme is intended to be a temporary measure in response to the impact the COVID-19 pandemic has had on the availability of high loan-to-value lending.

It intends to run the scheme from April 2021 to December 2022, but will review the continuing need for the programme towards the planned end date.

The scheme is part of a number of measures the government has introduced in a bid to increase homeownership in the country, including an extended Stamp Duty holiday and its First Homes scheme, which will see local first-time buyers offered homes with a 30% discount on market value.

Earlier this month the government also confirmed a number of changes to the shared ownership model as part of an effort to make the tenure more attractive to potential leaseholders.

Housing secretary Robert Jenrick said: “For too many people, no matter how hard they work, homeownership can seem out of reach. One of the biggest divides in our country has been between those who can afford their own home and those who cannot.

“That’s why we are determined to do everything we can to help hard-working families and prospective first-time buyers get their feet on the housing ladder in an easy and affordable way, to level up this country.

“The new mortgage guarantee scheme which comes into effect today will give providers the confidence to lend and help families and young people get on the property ladder without the prohibitive burden of a large deposit.

“Despite the challenges faced over the past year, the government has intervened to protect jobs, support builders and buyers to help keep the housing market healthy. Today’s 95% mortgages launch further strengthens our commitment to build back better from the pandemic.

“In recent years we’ve reversed the trend and seen a positive increase in owner-occupiers. We’re determined to build on this through the range of flexible ownership options, which help ensure homeownership is achievable. We want to match the ambitions of aspiring homeowners up and down the country.

“Together we can turn ‘Generation Rent’ into ‘Generation Buy’.”

Chancellor Rishi Sunak said: “Every new homeowner and mover supports jobs right across the housing sector, but saving for a big enough deposit can be hard, especially for first-time buyers.

“By giving lenders the option of a government guarantee on 95% mortgages, many more products will become available, boosting the sector, creating new jobs and helping people achieve their dream of owning their own home.”

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