Low-Deposit Mortgage Lending Has Jumped 38% Buyers Do Not Necessarily Need to Wait for the New Government Scheme

A first-time buyer with less than a 10% deposit should not automatically assume that homeownership depends on waiting for a new government scheme. The existing mortgage market advanced £24.7bn to low-deposit borrowers in the year to 30 June 2026, 38% more than during the preceding 12 months.

TWM Solicitors’ analysis of FCA mortgage statistics calculates that lending where the buyer provided a deposit below 10% rose from £17.9bn to £24.7bn. Within that total, mortgages with deposits below 5% more than doubled from £720m to £1.5bn.

The FCA’s Q2 2026 figures independently show the direction of travel. Advances above 90% loan-to-value represented 8.4% of gross mortgage advances, the highest share since Q2 2008. Lending above 75% LTV reached 47.5%, its highest share since Q4 2007.

That does not mean mortgage underwriting has returned to 2007 conditions. Affordability regulation, lender capital, stress testing and product design are materially different. It means lenders are allocating more capital to buyers who have income to support a mortgage but have accumulated less equity or deposit.

The Deposit Barrier Was Already Starting to Move

The strongest commercial message is not that every buyer can now obtain a near-100% mortgage. It is that the market contains more possible routes than the standard assumption of “save 10%, then apply”.

Conventional 95% mortgages remain the main high-LTV route. Selected lenders have also developed products above 95% LTV, fixed-deposit mortgages and structures supported by family savings or property. Each has its own maximum loan, property restrictions, affordability model and eligibility rules.

The increase in completed lending shows real activity rather than product announcements alone. Even so, aggregate totals cannot tell an individual buyer what they can borrow, at what price or on which property. That requires case-level assessment.

Why “Low Deposit” and “Unaffordable” Are Not the Same

A buyer may earn enough to support the monthly mortgage but struggle to save while paying rent, childcare, commuting and other living costs. Younger professionals can also have strong future earnings but limited savings because their higher income is recent.

That is different from a household whose income cannot sustainably support the proposed debt. A smaller deposit solves the initial cash requirement; it does not remove affordability checks or make an expensive property affordable.

The adviser should therefore separate two questions. First, can the household afford the mortgage and ongoing ownership costs? Second, which available structure deals most effectively with the deposit shortfall?

Five Routes a Deposit-Constrained Buyer May Need to Compare

A 95% mortgage uses a straightforward 5% cash deposit and leaves the buyer owning the entire property subject to the mortgage. The trade-off can be a higher rate and a larger loan than would apply under an equity-loan structure.

Selected fixed-deposit and above-95% products can reduce the cash requirement further. They often have tighter maximum property values, income requirements, loan caps or property criteria, so the attractive headline may not fit every transaction.

Family-assisted mortgages use a relative’s savings or property as additional security. They can enable a purchase without a large gifted deposit, but family capital may be locked away or exposed if payments are not maintained.

Shared ownership reduces the percentage purchased initially, but the buyer pays rent on the remaining share and may face service charges, staircasing rules and resale restrictions. It is a tenure decision as well as a mortgage decision.

Finally, the proposed Your First Home scheme is expected to combine a 2.5% deposit with a 20% government equity loan for eligible new builds. It may become a valuable sixth route, but detailed eligibility, costs and repayment rules are due at the 28 October Budget.

A 95% Mortgage and an Equity Loan Are Not Direct Substitutes

With a 95% mortgage, the buyer borrows most of the purchase price from one mortgage lender. They build equity by repaying capital and through any increase in property value. There is no government equity interest to settle later.

Under the announced outline for Your First Home, the buyer could contribute 2.5%, the government 20% and the mortgage lender approximately 77.5%. That smaller mortgage may reduce the initial monthly payment or access a lower LTV band, but the equity loan remains an obligation.

The government has not yet published whether repayment will track a percentage of future property value, how long the interest-free period lasts, what later charges apply or how remortgaging will work. Buyers cannot compare the true long-term cost until those details are known.

High LTV Can Bring a Purchase Forward—but Reduces the Equity Buffer

Buying with a 5% deposit rather than waiting for 10% may save years of rent and allow the household to settle sooner. It also means the buyer begins with a thinner equity cushion.

If the property value falls by 5%, much or all of the initial equity can disappear. That does not automatically create a payment problem, but it may prevent the buyer from switching to a competitive remortgage product or selling without contributing cash.

Higher-LTV rates can also be more expensive. The relevant comparison is not simply rent versus the mortgage payment. It includes interest, product fees, insurance, maintenance, service charges where applicable, moving costs and an emergency reserve.

The Cheapest Deposit Is Not Necessarily the Cheapest Purchase

A product requiring only £5,000 may enable an earlier purchase, but a higher interest rate over five years can cost more than waiting and using a larger deposit. Conversely, continued rent and possible house-price movement mean waiting also has a cost.

The calculation should model realistic scenarios rather than assume that property prices or mortgage rates will move in the buyer’s favour. The buyer’s likely holding period is important. A household expecting to move within two years has less time to recover transaction costs and build equity than one expecting to remain for seven years.

Property selection matters equally. Stretching to the maximum loan on a small home that the household will quickly outgrow can be less efficient than buying a sustainable property with a slightly larger deposit or different structure.

Family Help Does Not Have to Mean a Large Gift

Parents or relatives may be unable or unwilling to gift tens of thousands of pounds permanently. Some family-assisted products instead place savings into a designated account or take additional security for a defined period.

This can preserve family ownership of the money, subject to the product terms, while helping the buyer access a mortgage. It also creates risk: savings may be unavailable for several years and can be used to cover losses if the borrower defaults.

Family members should understand the legal position and obtain independent advice where appropriate. Support should not compromise their own emergency fund, retirement planning or ability to meet future needs.

New Builds Require an Additional Layer of Comparison

The proposed Your First Home scheme is restricted to new builds from participating developers. Existing high-LTV mortgages may support both new and second-hand property, but lenders can apply lower maximum LTVs or different criteria to particular new-build types.

Developer incentives, service charges, lease or estate obligations, warranty, specification and local resale evidence should all be examined. A deposit contribution may help cash flow but can affect the lender’s valuation or acceptable incentive limit.

A buyer should not choose a new build solely because a scheme reduces the deposit. The property itself must suit the household’s expected tenure, space requirements and resale prospects.

How Willow Private Finance Can Help

Willow can carry out a Deposit-Constraint Review for first-time buyers and other purchasers whose income supports a mortgage but whose available cash is below a conventional 10% deposit.

We assess household income, commitments, credit, deposit, family support, target property, location, purchase price and likely holding period. We can then compare suitable 95%, fixed-deposit, above-95%, family-assisted and shared-ownership routes where relevant.

Once the government publishes the full Your First Home rules, that scheme can be added to the same comparison. The objective is not to recommend the smallest possible deposit. It is to identify a sustainable route into ownership with clear costs, risks and future flexibility.