Saving a big deposit takes time. For many first-time buyers, a 5% deposit is all they have. The positive news is that you can still get a mortgage. This guide explains how.

A 5% deposit means you borrow 95% of the property’s value. This is called a 95% mortgage. These products exist and are available in 2026. But they come with higher costs and some extra risks to consider. This is general guidance only. Always speak to a qualified adviser before you apply.

How does a 95% mortgage work?

A 95% mortgage is a loan that covers 95% of what you pay for a home. You put down the other 5% as a deposit.

For example, if the home costs £200,000, your deposit is £10,000. You borrow £190,000. You then repay that loan plus interest over your mortgage term, usually 25 to 35 years.

Lenders take on more risk when they lend at 95%. If you cannot keep up with payments and the home has to be sold, there is less of a buffer for the lender. Because of this, 95% mortgages tend to have higher interest rates than deals with a bigger deposit. You can read about our maximum loan-to-value (LTV) to understand how we assess lending at different deposit levels.

To get any mortgage, you also need to pass affordability checks. The lender will look at your income, your debts, and your spending. They want to know if you can afford the monthly payments now and if interest rates rise.

What is the 95% mortgage guarantee scheme?

The government runs a scheme to help lenders offer 95% mortgages. It’s called the Mortgage Guarantee Scheme, or Freedom to Buy. It became a permanent scheme in July 2025.

Here is how it works: The government gives the lender a guarantee. If you default and the home sells for less than what’s owed, the government covers part of the lender’s loss. This makes lenders more willing to offer 95% deals.

The guarantee is for the lender, not for you. You’re still fully responsible for repaying the loan. If you stop paying, your home can still be repossessed.

The scheme has some rules. The key ones are:

  • The property must be in the UK
  • The property must be worth no more than £600,000
  • It must be a repayment mortgage, not interest-only
  • It can’t be used for buy to let or second homes
  • You must pass the lender’s usual credit and income checks

 

Both first-time buyers and home movers can use the scheme. You don’t have to be a first-time buyer to apply.

What are the advantages of a 95% mortgage?

  • You can buy sooner. You don’t have to wait years to save a larger deposit. A 5% deposit on a £200,000 home is £10,000. That’s much more achievable than a 10% or 20% deposit.
  • You stop paying rent. Every month you rent is money you don’t get back. Buying sooner means you start building equity in your own home.
  • You lock in a price. If house prices rise, buying now means you buy before prices increase. Waiting to save can cost you more in the long run.
  • More products available. The Mortgage Guarantee Scheme means more lenders offer 95% deals. You have more choice than you would without the scheme.

 

What are the disadvantages of a 95% mortgage?

Higher interest rate

Lenders charge more for 95% mortgages. The rate you pay will be higher than for a 90% or 80% deal. Over a 25-year term, this adds up to a lot more interest.

For example, on a £190,000 loan, even a 0.5% higher rate can add thousands of pounds to your total cost. Always compare the full cost of the mortgage, not just the monthly payment.

Greater risk of negative equity

If you borrow 95% of a home’s value and prices fall, you could end up owing more than the home is worth. This is called negative equity.

Negative equity makes it hard to move or remortgage. You may be stuck on your lender’s standard rate, which can be expensive, until prices recover, or you pay enough off the loan.

This risk is greater if you buy at a time when house prices are high.

What are the alternatives to 95% mortgages?

A 95% mortgage isn’t the only way to buy with a small deposit. Here are some other options to consider:

  • Lifetime ISA. If you’re aged 18 to 50, you can save up to £4,000 a year in a Lifetime ISA – you must make your first payment before you’re 40. The government adds a 25% bonus. This means £1,000 free for every £4,000 you save. The bonus can be used towards your first home, as long as it costs no more than £450,000.
  • First Homes scheme. This scheme offers a discount of 30% to 50% on new-build homes for eligible buyers. It’s aimed at local first-time buyers, key workers, and those on lower incomes. The discount stays with the home when you sell.
  • Shared Ownership. You buy a share of a home, between 10% and 75%, and pay rent on the rest. Your deposit is based on the share you buy, not the full price. This makes it possible to buy with a much smaller upfront payment.
  • Guarantor mortgage. A parent or close relative agrees to cover your payments if you can’t. This gives the lender more confidence and may help you access a larger loan or better rate.
  • Save a bigger deposit. Even moving from 5% to 10% opens up far more products at lower rates. If you can wait a bit longer, a larger deposit can save you a lot of money over the mortgage term.

 

For a full guide on your options, read our guide on how to get a mortgage as a first-time buyer.

Final thoughts

Buying with a 5% deposit is possible in 2026. The Mortgage Guarantee Scheme means lenders can offer 95% deals, and there’s more choice than there used to be.

But 95% mortgages cost more and carry more risk. It’s worth looking at all your options before you decide.

As a first-time buyer, getting the right advice matters. Pepper Money works with brokers who help people in your situation every day. You can find a broker through us today.