What the end of the 95% mortgage guarantee scheme means for buyers

The 95% mortgage guarantee scheme was first launched in April 2021 to boost homeownership after the pandemic. The scheme has helped more than 50,000 buyers secure a mortgage with just a 5% deposit, most of them first time buyers.

But with the government yet to confirm details of a replacement scheme, questions remain about what this means for those with small deposits trying to get on the property ladder.

Low-deposit options shrink as the scheme ends

The end of the mortgage guarantee scheme comes at a challenging time for buyers, especially younger people and renters with limited savings.

Some lenders may have only offered 95% loan-to-value (LTV) mortgages because the government shouldered part of the risk.

The scheme worked by letting lenders purchase a government guarantee on the portion of the mortgage between 80% and 95% of the property’s value. This meant that if a borrower fell into financial difficulty and the home was repossessed, the government would cover part of the lender’s losses on that upper slice of the loan.

Without that backing, fewer low-deposit deals might remain on the market, and those that do may come with higher interest rates and stricter affordability checks.

According to the Moneyfacts group, borrowers who can stretch their deposit to 10% will find a much wider choice of mortgages at better rates. In April it reported that the number of mortgages available to buyers with a 10% deposit had risen to 845, compared to 442 deals for those with a 5% deposit.

Are lenders stepping in to fill the gap?

While the government has promised a new “permanent” scheme to help first-time buyers, full details have not yet been confirmed.

While we wait to see which lenders will continue to offer 95% mortgages without the government scheme to fall back on, there are other options to weigh up:

100% mortgages: Skipton offers a 100% mortgage for renters based on their track record of paying rent to work out what they may be able to borrow. At least two other lenders – April Mortgages and Gable mortgages – offer a 100% mortgage aimed at first-time buyers.

Family-assisted deals: Guarantor or family deposit mortgages, where a parent or relative provides financial support, remain an option for those with small deposits.

Shared ownership and first homes schemes: Government-backed alternatives like shared ownership or the First Homes initiative can reduce the size of deposit needed.

New build incentives: Nationwide, along with lenders such as Accord, Barclays, Halifax and Skipton, offers 95% mortgages on new-build houses. Nationwide will also extend mortgage offers on all new builds to nine months to allow for potential construction delays.

What to consider if you have a small deposit

If your plan was to buy with a deposit of 5% using the scheme, there are still options available. Here’s what to keep in mind:

Check all schemes and offers: Explore shared ownership, the First Homes scheme, and family support routes such as guarantor mortgages that might help reduce your upfront costs.

Shop around: Mortgage deals vary greatly. Comparing offers across the market or using a broker can help you find a deal that fits your circumstances. Just because the mortgage guarantee scheme has ended isn’t to say some lenders won’t still offer a 95% or even a 100% mortgage.

Try to save enough for a 10% deposit: Focusing on building a bigger deposit would gain you access to 90% loan-to-value mortgage options, which most lenders offer.

Budget for long-term costs: Low-deposit mortgages can be more expensive over time due to higher interest rates. Think carefully about your monthly payments and if you can afford the risk of future rate rises.

The bottom line?The end of the 95% mortgage guarantee scheme could make it harder – but not impossible – for first-time buyers with small deposits to step onto the property ladder.

While some lenders are introducing new low-deposit deals, these may come with trade-offs in the form of higher interest rates or tighter lending criteria. For buyers, the key is to explore every option, understand the long-term costs, and seek professional guidance to secure the best possible deal.