How do I buy a brand-new home with a 5% deposit?

What is a 5% deposit mortgage?

Traditionally, lenders have expected homebuyers to contribute a significant sum in the form of a deposit. Often set at 10% of the property price, it can sometimes be higher, with the level being influenced by various factors, such as your financial situation and the type of mortgage product.

To help first time buyers in particular, the government has been actively encouraging banks and building societies to offer mortgages that require smaller 5% deposits.

As you might think, a 5% deposit means you need to contribute a lump sum equivalent to 5% of the property price. Confusingly, a 5% deposit mortgage can also be called a 95% mortgage. That’s because you’ll effectively need to borrow 95% of the property price to secure the home you want to buy.

 

What are the pros and cons of a 5% deposit mortgage?

As with any financial product, it’s important to be aware of the potential ups and downs of a 5% deposit mortgage, so you can work out whether it’s right for you.

The pros

• The deposit required to buy the home you want will be smaller.
• By avoiding the need to save up a larger deposit, you can act faster and get on the property ladder sooner.
• Although 95% mortgages may work out more expensive than traditional mortgages, interest rates are still low by historical standards.
• You can protect yourself from any future interest rate rises by choosing a fixed-rate option.

The cons

• Interest rates are higher on 95% mortgages as lenders tend to see them as riskier.
• Your monthly repayments may be higher as you’ll be borrowing a larger sum of money.
• There is a bigger risk of negative equity – that’s when the value of your home falls so that if you sell it the money you get won’t be enough to pay off your mortgage.
• You may risk overstretching yourself if your circumstances change, like having a child or losing your job.

If you want to see what kind of low deposit mortgage products are currently available, MoneySuperMarket has a handy comparison tool.

Be guided by experience

Whether you’re a first-time buyer or an existing homeowner, buying a home can be a complicated process. There’s a lot to consider, so it’s always worth getting expert advice, as well as talking to friends and family who have recent experience of a property purchase.

Start your homebuying journey

There are also a number of other offers that could help you secure a brand-new home in some of London’s most exciting and up-and-coming areas.

 

If you’re ready to start looking, we have a wide range of brand-new, energy-efficient homes to choose from – all designed and built with modern city living in mind.

¹ UK House Price Index: September 2023, Office for National Statistics.