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.