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Mortgage deposit schemes

Author: Myles Robinson - Expert Finance Advisor

Posted: May 15, 2022

Mortgage deposit schemes in the UK

It can be difficult to save for a deposit. First-time buyers may find it almost impossible to get on the property ladder due to high living and rent costs.

The government mortgage guarantee scheme offers assistance to save up for your first home in the UK, by helping you with your mortgage deposit.

This article explains these schemes more in detail and discusses other low-deposit mortgage options that may be available to you, besides government mortgage deposit programs.

Talk to an expert mortgage lender today if you want to save time and money, and discuss your options rather than trying to figure out what they might be.

They are happy to answer any questions you may have and guide you through the various mortgage deposit options that might work for you.

For a confidential, no-obligation chat, send an enquiry today.

What is the minimum amount of deposit needed to get a mortgage?

Most lenders will consider you more favourable if your deposit is larger for your new home. This is because they have less risk and are more likely to get their money back if the mortgage is not paid.

If you are able to make more deposits, it can be very beneficial. Most lenders will consider someone with 20-25%. This means that you have more options and are more likely to qualify for lower interest rates.

Don’t panic if you don’t have the funds to pay a larger deposit. You can still get a mortgage even if you have only 5-10% of your savings. This applies to both new and resale homes.

Before you make any decision, take a look at the available mortgage deposit schemes to boost your savings and give you more options for mortgages.

What government mortgage deposit options are available?

Help with buying

There is a government-backed mortgage scheme, Help to Buy programs that help people with low incomes to get on the property ladder.

There are many ways to get government-funded assistance for buying your first home if you have a minimum of 5% deposit.

Our mortgage brokers will advise you on the new mortgage guarantee scheme.

Equity Loans for Help with Buying

The Help To Buy Equity Loan allows you to purchase a home with as low as 5% down payment. The government will lend up to 20% of the property’s worth in addition to your contribution (40% in London).

This is open to first-time buyers as well as current homeowners who are looking to move. However, the property must not exceed PS600,000.

5% Deposit mortgages – government schemes explained

To be eligible, a buyer must only have a 5% deposit on a mortgage to qualify for the scheme. The government will also contribute to your loan.

Now you can afford a 25% down payment and a 75% mortgage to cover the remainder (55% in London).

If you have a deposit of 5% and want to buy a property worth PS200,000,

 

If you have saved more than 5%, you may be eligible for Help to Buy.

You can deposit up to 65% if you want to maximize your contribution.

If you have more than 5%, you will need to use a minimum of 10 percent Help to Buy equity loan and a minimum of 25 percent mortgage.

For a property worth PS200,000, the following breakdowns would apply:

Notably, if you apply for the Help to Buy equity loan you can’t sublet the property or enter into part exchange deals in your old house. This is because you are not eligible if another property you own is already considered eligible.

This is why it is not recommended for buy-to-let (BTL) investments.

London Helps to Buy

The Government has raised the maximum amount of the Help to Buy equity loans scheme to 40% due to the high price of London property.

You will need to deposit at least 5% of your property price. The Government will lend you up to 40% of your property’s value. To cover the remainder, you will need to take out a maximum 55% mortgage.

Help to Buy:

*The Help To Buy: ISA program has been closed to new applicants since 30 November 2019. However, you can still apply to the Lifetime ISA. Our guide provides more details.

The Help To Buy Mortgage Deposit ISA is a savings scheme that will increase your savings by 25% if you are saving for your first home. For every £200 saved, you will receive a £50 bonus from the government.

You can only receive a minimum government bonus of £400 before you can withdraw the funds. This means that you must have at least £31,600 in savings before you can claim the bonus. This scheme allows you to receive a maximum bonus of £3,000 or £12,000 in savings.

This bonus is available to each first-time buyer and not per household. If you are looking to buy a property together, you may be eligible for a £6,000 government bonus towards your first home.

This is a great, flexible program for new homeowners. However, you will only get your bonus money upon completion of a purchase.

Help to buy shares of ownership

Another scheme that offers government assistance with your mortgage deposit is Shared Ownership. This is for first-time buyers and households with lower incomes (£60,000 per year).

Shared ownership allows you to purchase a share, usually between 25% and 75%) in a resale home or new-build home. You also get a reduced pay rent. If you are able to afford it, you will be able to purchase a larger share.

It is important to note that Shared Ownership properties remain on leasehold. However, you have the right of purchasing additional shares. The property becomes a separate ownership property if your equity share exceeds 100%.

Either use your savings or get a mortgage to finance your share of the property’s purchase price. While most lenders require a deposit of at least 5% to 10%, there are some lenders that will offer 100% mortgages for shared ownership properties.

Help to Buy: Mortgage Government Guarantee

NOTE: The Help to Buy 2 program is currently inactive. This scheme was intended to enable borrowers to buy any property on the open marketplace at a 5% deposit and 95% loan. The lender could also purchase a guarantee from the government to cover losses up to 20%. In 2017, this was removed.

Lifetime ISA (LISA).

Anyone between 18 and 39 can apply for the LISA to purchase a first home or save money for their retirement.

The government will give you a 25% bonus on any savings you make. You can save as much as £4,000 per year. If you saved the entire £4,000 each year, you’d receive an additional £1,000.

After you have held the LISA for more than 12 months, the money can be withdrawn and used to deposit in residential property of less than £450,000.

Lifetime ISAs are different from the Help To Buy ISA in that they can be used to save for the future. There are no deposits after 50 and you can only access it after 60. To reverse the government bonus, any withdrawals made before this date will be subject to a 25% charge.

LISAs are a great option because you can receive large amounts in bonuses. However, you will need to deposit less cash.

You should be aware that if you withdraw money from a LISA prior to the age of 60 and you don’t use it for your first home purchase, you could be subject to a 25% penalty on your total savings. You should ensure that you have the funds you need to keep this account open.

Right to Buy

The Right to Buy Mortgage Deposit Scheme assists eligible housing associations and council tenants with mortgage deposits by offering the property at a reduced rate.

The length of your tenancy, the type of property and its market value will determine how much discount you get. The discount levels begin at 3 years and increase to 70% after that.

If you don’t have the funds to buy the property, you will need to apply for a mortgage.

Many lenders will let you use your Right to Buy Discount as your deposit. This means that you could get a mortgage with no deposit.

This has the upside that you can get more competitive rates on your mortgage if you deposit your own money.

Government Starter Homes Scheme

Starter Homes, a government mortgage deposit scheme that targets first-time buyers between 23 and 40 years old, can offer a minimum20% reduction on a new-build property. This is possible by allowing developers to construct on brownfield commercial land that is cheaper and waiving taxes.

Starter Homes offers a maximum property value of £250,000 or £450,000 in London. These properties cannot be resold or rented at their original market price until at least five years after the sale.

Talk to an expert advisor about the government-funded mortgage deposit schemes. Enquire today for the best mortgage deal.

We offer a free service, with no obligations and without affecting your credit rating.

 

Are there any other schemes?

Even if you aren’t eligible for a government loan to pay a mortgage deposit it is possible to still get on the housing ladder by saving a small amount (or even 0%). If it is affordable, some lenders will let you borrow a deposit from personal loans.

To get the best rates, however, you should consider whether or not you can take advantage of one of these non-government backed deposit plans.

Developer gifted deposits

Many UK building developers offer “builder gifts”, which are new build sales that include a discount, which can be used to pay the buyer’s deposit. Some will match the deposit of the buyer (typically 5%) and offer a “deposit matching” option where the buyer can take out a mortgage to cover the extra 90%.

Lenders will be cautious about builders’ gifted deposits. They may also ask for evidence that the asking price of the property is comparable to the real market value. Many lenders will require that you contribute from your own pocket to the gift. This will prove your investment and give you better rates on mortgages.

Bank schemes

Specialist mortgages are now offered by some lenders to cash-strapped first-timers. Most popular are the “Lend a Hand”, or ” Family Springboard” programs.

These allow relatives of first-time buyers to use their savings to buy a house. The buyer will typically need to contribute at least 5% and the relative will need to deposit 10% of the property’s purchase price in an interest-bearing account. They will be able to access the account after three years provided they have made all mortgage payments on time.

There are different minimum deposit requirements for each lender. Rates and requirements may vary between lenders. However, if your family or friends are willing to contribute to your mortgage deposit, it is worth investigating.

These schemes will allow you to increase your deposit and give you access to more lenders, as well as lower interest rates. New schemes are constantly being introduced, so make sure to get in touch with a broker who specializes in all aspects of the market to find the best deal for you.

Guarantor mortgage

A guarantor mortgage means that a friend or relative uses their money or house as security or a deposit for you. The guarantor must own their property or have sufficient equity to satisfy the lender to be eligible.

You will need to show them proof of good credit and that you can pay your debts if they default. Your guarantor will not own any part of the property that you purchase, and lenders will require a signed agreement outlining the terms.

Although lenders may be cautious about accepting guarantors from certain individuals, most lenders will accept these arrangements. Although guarantors are often allowed to lend 100%, it is better to have your own savings to ensure the best rates.

If I purchased through a government deposit program, can I remortgage it?

Yes. The process and criteria will not be different for someone who did not use a government-deposit scheme. Our team includes experts in Help To Buy remortgage schemes and brokers who can assist you with refinancing if your property was purchased through another deposit scheme.

 

Other factors that impact eligibility

You may also be eligible to receive a mortgage deposit program if you have other eligibility factors.

What government assistance can I receive for a buy-to-let?

Most schemes are designed to help first-time buyers and low-income buyers to the ladder. If you are looking to invest in a BTL or second home, you won’t be eligible for government funding.

You will also be limited in your options if the property that you are looking to purchase is a resale.

Can bad credit impact a government mortgage deposit program?

This could also affect your eligibility if you have a bad credit history. You may not be eligible for government assistance depending on the severity of your bad credit history. Lenders may also require that you deposit a larger amount than 5%.

Here is a list of credit problems you might face as a borrower. If you have ever had any of these issues, you will need a specialist mortgage lender.

  • Overview of adverse credit
  • Credit score low
  • Mortgage arrears
  • Defaults
  • County Court Judgements (CCJs).
  • Individual Voluntary Arrangements
  • Debt Management Plans (DMPs)
  • Bankruptcy
  • Repossession

The Help To Buy scheme gives you more flexibility than usual when you submit applications with credit history issues.

Our expert brokers are skilled in helping customers with adverse credit issues get the mortgage they desire.

Our brokers are all-of-market brokers. This means they have access to and knowledge of mortgage lenders in the UK. They also know how to contact borrowers with more complex financial situations.

If I am self-employed, can I receive government assistance with a mortgage deposit?

Also, consider your employment status. Self-employed people are considered at higher risk and are therefore less likely to be approved by lenders.

A minimum of one year of accounts (ideally, 1 – 3 years) is required to prove income in order to get the best self-employed mortgage rates. Most lenders will accept this as proof that your income is stable and that you can pay your mortgage payments.

Are our key workers eligible for government assistance with mortgage deposits?

Absolutely. Many key workers (e.g teachers) approach us to find out if there are any mortgage programs that offer low or zero deposit mortgages for people working in the public sector.

There were once lenders that offered key worker schemes. Unfortunately, this is no more.

The good news is that lenders still offer special rates to key workers and other professionals. They also have specific products that aren’t available to the general population. Our specialist advisors know these people.

Talk to an expert on mortgage deposit schemes today

For more information about mortgage deposit loan programs, please call Loan Corp or submit an enquiry to speak to us.

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