The Mortgage Guarantee Scheme is a UK government program that lets you buy a home with a deposit of just 5% by backing part of the lender’s risk on high loan-to-value mortgages. It became permanent in July 2025, replacing the temporary version first launched in 2021. The guarantee goes to the lender, not to you, and it’s what gives banks the confidence to offer 95% LTV products to buyers who would otherwise be told to come back with a bigger deposit.1GOV.UK. 2025 Mortgage Guarantee Scheme
In practical terms, the government agrees to cover a share of a lender’s losses on the slice of the loan above 80% of the purchase price if the borrower defaults and the property is repossessed. Lenders keep 5% of those losses themselves and pay the government a fee for each guaranteed loan, so standards don’t go soft just because the state is standing behind the riskiest part of the mortgage.2GOV.UK. The Mortgage Guarantee Scheme For you as a buyer, none of that machinery matters day to day. What matters is that participating lenders can say yes to a 5% deposit.
Who Can Use the Scheme
You can be a first-time buyer or an existing homeowner moving to a new property. The one firm rule on your end is that the home has to be where you’ll actually live.1GOV.UK. 2025 Mortgage Guarantee Scheme Buy-to-let purchases, second homes, and investment properties are out.
Beyond that, you still have to pass the lender’s own affordability checks. The guarantee doesn’t loosen them. Each lender looks at your income, existing debts, and spending the same way it would for any mortgage application, and each sets its own criteria. A refusal from one lender doesn’t mean the next will say no, which is one reason a broker can be useful at 95% LTV: not every lender participates, and the rates on offer vary.
What Property Qualifies
The property must be in the United Kingdom and must be your primary residence.1GOV.UK. 2025 Mortgage Guarantee Scheme The original 2021 scheme imposed a £600,000 cap on the purchase price.3GOV.UK. New 95% Mortgage Scheme Launches Check the current cap published on GOV.UK before you commit to a property under the permanent scheme.
Both existing homes and new-builds are eligible in principle, but lender appetite varies. Several large banks have historically declined 95% LTV lending on new-builds because new-build values can fall quickly after purchase, leaving the buyer in negative equity. The same caution applies to some high-rise flats. The guarantee is available; the individual lender still gets to say no.
Deposit Size and Mortgage Type
You need a deposit of between 5% and 9% of the purchase price, with the lender financing the remaining 91% to 95%.1GOV.UK. 2025 Mortgage Guarantee Scheme If you already have 10% or more saved, the scheme isn’t aimed at you; most lenders offer 90% LTV products without a government backstop.
The mortgage has to be a repayment mortgage, where each monthly payment reduces both the interest and the outstanding balance. Interest-only mortgages don’t qualify. The scheme is designed to help you build equity, which only happens if the balance actually goes down.
How to Apply
You apply through a participating lender’s normal mortgage process. There’s no separate government portal. The application form may have a box to flag that the loan falls under the guarantee scheme, but the paperwork is otherwise standard.
Expect to provide a valid passport or driving licence, proof of your current address dated within the last three months, and evidence of income. Employed applicants typically supply three months of payslips and sometimes a P60 to verify bonus or overtime income. Self-employed applicants supply SA302 tax calculations and tax year overviews from HMRC, usually for the last two to three years.4Santander UK. What Documents Do I Need to Apply for a Mortgage
You also need to show where the deposit came from. Bank statements showing savings build up over time are the easy case. If the money is a gift from a family member, the lender will want a signed letter from the gifter confirming it’s a gift rather than a loan, plus evidence of the gifter’s own funds. Unexplained lump sums landing shortly before you apply will trigger anti-money-laundering questions, so get the paperwork sorted before you submit.
From a complete application to a formal offer usually takes about two weeks, longer if the valuation raises issues or the underwriter needs more documents.5HSBC UK. Timeline for Buying a Home – Mortgage Process
What a 95% Mortgage Actually Costs
Borrowing at 95% LTV costs more than borrowing at a lower ratio, even with the guarantee. Lenders price risk into their rates, and a 5% deposit carries a higher statistical chance of negative equity than a 25% deposit. HSBC’s fee-saver fixed rates, for example, show a five-year deal at 95% LTV at 5.35%, compared with 4.74% at 75% LTV and 4.64% at 60% LTV.6HSBC UK. Mortgage Rates – Interest Rates Over the life of the mortgage, that gap runs into thousands of pounds.
Moving from a 5% to a 10% deposit can noticeably cut your rate and your total borrowing cost. The scheme is there so you don’t have to wait years to save a bigger deposit, but go in knowing what the smaller one costs you.
Stamp Duty for First-Time Buyers
Stamp duty land tax sits on top of the deposit and the mortgage. In England and Northern Ireland, first-time buyers pay no stamp duty on the first £300,000 of the price and 5% on the portion between £300,001 and £500,000. If the property costs more than £500,000, the first-time buyer relief disappears entirely.7GOV.UK. Stamp Duty Land Tax – Residential Property Rates Scotland and Wales have their own land transaction taxes with different thresholds. Budget for this early, because it falls due on completion and can’t be rolled into the mortgage.
What Happens If You Default
The guarantee protects the lender, not you. If you miss payments, the lender follows the same arrears process as on any other mortgage: contact, forbearance options, and, if nothing resolves, repossession. After the property is sold, if the sale price doesn’t cover what you owe, the government compensates the lender for part of the shortfall on the slice above 80% LTV.2GOV.UK. The Mortgage Guarantee Scheme
You stay liable. The lender can still pursue you for any shortfall left after the sale and the guarantee payout, and a repossession damages your credit record for years. The scheme helps you onto the ladder. It gives you no cushion once you’re on it.