First Time Buyers With 5% Deposits | What Are The Options?

Let’s Talk Money and Mortgages

Introduction

Gemma: Hello and welcome back to our channel and podcast! My name is Gemma, and here at WIS, we talk about money, mortgages, and positive money mindset.

If that interests you, be sure to subscribe and hit the thumbs up so you won’t miss any of our videos.

Today’s episode is all about first-time buyers purchasing a property with a 5% deposit.

We are joined by Ifthi, a trained accountant and mortgage advisor with over 11 years of experience, and one of the founding directors at WIS.

Welcome back, Ifthi! How are you today?

Ifthi: Hi, I’m very well, thank you.

Gemma: I’m very good, thank you!

Q1: Where should first-time buyers start?

Gemma: If you’re a first-time buyer, it can feel overwhelming. Where should you start?

Ifthi: The best place to start is always with a mortgage broker.

A broker can guide you through the process and help figure out your affordability, which is crucial when planning for your first property.

Knowing what you can afford helps you budget and confidently make offers.

Q2: Why is affordability so important for first-time buyers?

Ifthi:

Houses can range from £40,000 to several million pounds, so knowing your maximum budget is essential.

Many first-time buyers are just starting their careers or partnerships, so understanding affordability helps prevent overstretching financially.

Affordability determines which properties you can realistically consider.

Q3: How does the deposit affect affordability?

Ifthi:

The deposit plays a major role in what you can borrow.

First-time buyers often have smaller deposits, around 5–10%.

Gemma: Why does a smaller deposit make a difference?

Ifthi:

Banks see smaller deposits as higher risk, because borrowers own less of the property.

Smaller deposits may reduce the income multiple a bank offers. For example, a 25% deposit may allow 4.75x income, but a 5% deposit could lower that.

Banks also pay close attention to credit scores with smaller deposits. A lower credit score may prevent eligibility for a 5% deposit mortgage.

Q4: What options are available for first-time buyers with a 5% deposit?

1. Help to Buy Scheme

Ifthi:

Popular scheme to boost borrowing capacity.

Typically, you put down 5%, and the government provides a 20% equity loan.

This effectively increases your deposit to 25%, so you only borrow 75% from the bank.

Important: the Help to Buy scheme is ending soon, so timing is crucial.

Gemma: We’ll link a detailed Help to Buy video for those interested.

2. Shared Ownership Scheme

Ifthi:

You buy a share of the property, usually 25–75%, with a mortgage for that portion.

The housing association owns the remainder, and you pay rent on that share.

It’s a useful option for first-time buyers to get on the property ladder with a smaller deposit.

3. Bank of Mum and Dad

Ifthi:

Parents can help by gIfthing £5,000–£10,000 as a deposit.

Important: the money must be a gift, not a loan, and banks require documentation, such as a gifted deposit letter and proof of funds.

4. Joint Borrower Sole Proprietor (JBSP)

Ifthi:

Increasingly popular for first-time buyers or university students.

Both child and parents jointly take the mortgage, but the property deed is in the child’s name.

This allows borrowers with limited income to qualify, as the parent’s income strengthens the application.

Tax implications exist but are a separate discussion.

5. Standard 95% Mortgage Products

Ifthi:

Most lenders offer 95% loan-to-value mortgages.

Some include the government-backed 5% deposit scheme, guaranteeing part of the property value.

Banks consider 5% deposits higher risk, so credit evaluations are strict.

Gemma: Make sure your credit file is clean, and an advisor can help you review it before applying.

Q5: Any additional advice for first-time buyers?

Ifthi:

Speak to an advisor early, even if you haven’t saved the full 5% deposit yet.

Advisors can provide tips to improve credit scores and save toward deposits.

Keep an eye on new schemes, including private lenders offering alternative options.

Comparing schemes with an advisor ensures you get the best rates and terms.

Gemma:

Many first-time buyers are unaware of government contributions or special schemes.

Brokers have experience with thousands of clients, making them a valuable resource for guidance.

Conclusion

Gemma:

First-time buyers with a 5% deposit have several options, including Help to Buy, Shared Ownership, JBSP, Bank of Mum and Dad, and standard 95% mortgages.

Speak to an advisor to confirm what’s suitable for your circumstances.

A mortgage is secured against your home or property and may be repossessed if you do not keep up with repayments.

Thank you for joining us! We’ll be back next week with another episode of Let’s Talk Money and Mortgages.