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5% Deposit mortgages for Scotland properties

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Nov 6, 2022

Fact Checked By:
David Nicholson - Finance Editor

5% Deposit mortgages in Scotland – The best lenders, rates and how we can get you approved today online

Home ownership is a goal for most people. Some might even have their dream home in mind and work towards seizing ownership of that perfect house for themselves or their families.

However, with house prices recording peak levels, first-time buyers and some home movers might find it difficult to raise enough money to buy residential property.

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Taking out a mortgage is the most common method of buying a residential property. However, the traditional lending options available might not just cut it for some. As a result, 5% deposit mortgages were introduced in the UK.

How does this lending deal work, and how does it benefit home buyers and the entire real-estate landscape?

Here is a detailed breakdown of how a 95% mortgage deal works in Scotland and how to qualify for them.

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How does the 5% deposit mortgage guarantee scheme work in Scotland?

The 5% deposit initiative from the government is primarily a method for encouraging lenders to provide low-deposit mortgage offerings to home buyers. In the background, the government provides mortgage lenders with financial backing if a mortgage should miss its repayments and the property has to be repossessed.

In this event, the government repays a certain percentage of the costs to lenders. This insulates lenders from the risk of low-deposit mortgages to a certain extent, encouraging such lending options in the real estate market.

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Benefits of 5% deposits for first-time buyers and home movers

Perhaps, you might be wondering what makes the 5% deposit mortgages different from others. How does it benefit home buyers? Well, one of the main benefits of this type of mortgage is that potential buyers have the option to get on the property ladder right away.

Since the mortgage requires a low deposit, it is easier for buyers to get a mortgage, provided they fit the eligibility criteria. Therefore, buyers do not have to wait years before they can even contemplate buying their first home or moving into a new one. So, as you might know, saving up for a deposit could take longer for some, and this mortgage bridges that gap.


Which lenders provide 5% deposit mortgages in Scotland?

Buying your own home in Scotland can be more than just a dream, and the 5% guarantee scheme makes it more of a reality by unlocking opportunities that would otherwise be unattainable for most home buyers.

Several alternative lenders have launched their 95% mortgage lending options; some are part of the government-backed scheme, whereas others aren’t.

However, the Royal Bank of Scotland is the primary lender that has confirmed that they use the government guarantee. Mortgage brokers can provide more details on the landscape of 5% deposit mortgages in Scotland, including all the alternative lenders that have this type of mortgage as an option.


Eligibility criteria for the 95% mortgage guarantee scheme

The eligibility criteria for the 95% mortgage scheme are quite simple and straightforward. If you have enough income for the repayments, there should not be any problems with approving your application, provided the application falls under these criteria:

  • The deposit must be between 5% and 9% for an LTV of 95% to 91%. Anything more than that can be regarded as a traditional repayment loan.
  • Residential property prices should not exceed £600,000.
  • The property being purchased must be the primary residence of the applicant. The scheme will not cover second homes and buy-to-let property.
  • Applicants must have the necessary affordability capacity, which lenders will determine through a loan-to-income assessment and credit history check.

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How to get the best out of a 95% mortgage deal

It goes without question that the 95% ltv mortgage deal might not be the ultimate best mortgage out there.

Regardless of what mortgage providers might claim, the monthly repayments on your mortgage will be subsequently higher due to simple truths such as a higher outstanding amount on the mortgage, meaning higher monthly payments.

How can home buyers get the best out of this deal despite these facts? One of the best ways of getting the best out of the 95% mortgage deal is by ramping up the initial deposit.

Instead of going for the minimum 5%, save up a little bit more to reduce the monthly mortgage payments. Remember, you can go as high as 9% to qualify for this type of mortgage.


How long will the government guarantee be around?

When the government guarantee initiative was launched, it aimed to repair the damage from the economic outfall of COVID-19. Since the mortgage guarantee scheme was initiated with that purpose in mind, it had a limited timeframe in total. The original timeframe was just over a year and a half.

From its launch in April 2021, the scheme was set to conclude in December 2022. However, the government might extend it slightly due to its efficacy and the potential ramifications of an abrupt end to the guarantee scheme in such a fragile economy.

Even with the scheme out of the picture, lenders might be more open to low-deposit mortgages in the future.


Impact of the government’s mortgage guarantee scheme on house prices

Soon after the pandemic struck, house prices began to fall at dangerous rates, so the scheme was initiated. As mentioned above, the scheme’s primary objective was to correct the damage to the economy and raise house prices again. The 95% mortgage scheme did much more than that.

As intended, the then-new mortgage guarantee scheme caused house prices to rise until they reached peak levels. Therefore, the 95% mortgage initiative, in conjunction with other schemes launched by the government during these dark days, was beyond useful. They established a positive precedent for house prices and the real estate market.

Most importantly, these schemes encouraged prospective buyers to get in on the residential property action once more.

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Other options for home buyers and movers in Scotland

When searching for a home, especially for first-time buyers trying to get on the property ladder sooner, the search might lead to interesting places that you might not have considered before. For example, home buyers might be presented with unique lending options, from navigating the world of interest-only mortgage options to shared ownership.

Regardless of how unconventional these arrangements may seem, they are effective and have helped other homeowners reach their home ownership goals. Here are other alternatives and detailed descriptions of how you can benefit from them.

Shared ownership

A shared ownership arrangement allows you to live in that dream house by minimizing the costs. You can buy a share of the house and pay a relative share of the rent to the respective housing association.

The rent is generally minimal, depending on the share you own of that house. It is a good alternative for home buyers that cannot afford a large deposit or qualify for a traditional mortgage. This initiative is available across Scotland for people looking for a place to call home.

Low-Cost Initiative for First-Time Buyers

Unlike the shared ownership model, the Low-Cost Initiative for First-Time Buyers uses shared equity, meaning the ownership of the property will be under your name when you buy. There are two options under this initiative. One is restricted to a much smaller audience, but the Open-Market Shared Equity scheme can be approved for a larger audience.

Guarantor mortgages

Guarantor mortgages are what can be regarded as a fail-safe option. If your credit score is not that good, this mortgage can help you seize ownership of that house you have always dreamed of. However, it might be tricky to get it approved since it requires a third party with a good credit record.

If you have someone who can vouch for you and sign papers claiming responsibility to cover the costs should you not pay the repayments, this loan is the perfect option for you. If they have a good credit standing, you have an exponentially better shot at getting that mortgage.

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Reach out to Loan Corp experts to find a 5% mortgage suitable for you

What is the best way to get a good deal on mortgage repayments based on interest and purchase price?

Using the services of a mortgage broker helps with negotiating a better interest on mortgage deals since mortgage brokers rub shoulders with lenders daily.

Their services are not limited to finding a good deal for you but also constitute financial advice. With such expertise, mortgage brokers can provide guidance when property prices fall and, most importantly, guide you while looking for a mortgage.

Loan Corp is determined to help you find a tailor-made solution for your specific situation.

Reach out to Loan Corp today to find a 5% mortgage from a reputable lender most suitable for your financial situation.

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Can you still get 5% mortgages in Scotland?

The 95% mortgage deal backed by the government is due to end in December 2022, but the scheme has the potential to run for longer, although it is not set in stone.

Be that as it may, some lenders might also sustain their low deposit offerings since this scheme proved very effective in the housing market alongside other government schemes.

Can I get a mortgage with a 5% deposit?

This government-backed mortgage scheme was a leap in the right direction by encouraging lenders to widen their horizons when it comes to low-deposit mortgages. Therefore, even beyond this scheme, getting a 95% mortgage loan to value (LTV) might be a little bit easier.

How much deposit do I need for a mortgage in Scotland?

With the government guarantee scheme, you only need a 5% deposit. You can deposit a higher amount to reduce the monthly payments by shaving off the remainder of the purchase price that is still outstanding.

The scheme allows a deposit ranging between 5% to 9%. However, it all depends on your financial circumstances. See this calculator to know where you stand.


Final thoughts on 95% LTV Scotland mortgages

First-time buyers and home movers have the perfect opportunity to get on that property ladder through low-deposit mortgages.

If your financial circumstances only allow a minimum deposit but with the potential of managing higher repayment mortgage amounts, these deals might be the perfect fit for you.

Also, this scheme works best for buyers looking to move in quickly, so if that is your concern and you don’t have much time to save, 5% mortgages can be a lifesaver.

When it comes to such financial decisions involving any mortgage lender, using the services of a mortgage broker will ensure you get a better deal. Get started online below:

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