New help to buy scheme: Details on 2.5% deposit mortgages for new-build homes

Aspiring first-time buyers will soon be able to take a step on the property ladder with a deposit of just 2.5% under a new government scheme.

The Your First Home scheme will be launched in the Autumn Budget next month and offers buyer a 20% equity loan when they save a small deposit for a new build home.

It works in a similar way to the government's previous Help to Buy scheme, which offered an equity loan with a deposit of 5% but closed in 2023.

The scheme will have an income cap attached to it with further details to be given in the Budget on 28 October.

What is the new Your First Home scheme?

Your First Home is an equity loan scheme for first-time buyers in England.

The government says it is intended to tackle the deposit barrier faced by people who would otherwise struggle to afford their first home.

Under the plans first-time buyers will need a deposit of just 2.5%.

The government will back an equity loan of 20% of the property price, which helps reduce the risk of giving mortgages in exchange for small deposits for lenders.

In turn, this means that buyers can save on interest charges.

The government says the equity loan could save hundreds of pounds a month compared to a standard 95% mortgage.

The scheme would apply to new-build properties and buyers would need to purchase from a developer signed up to the scheme.

The equity loan will have an initial interest-free period before charges will start to apply, exact rates will be announced at the Budget among other details.

There will also be a household income cap which will be confirmed at the Budget.

The launch date is also set to be announced at the Budget.

Is the First Home scheme for new-builds only?

The scheme is set to be offered through new-build homes and developers only.

If you don't want a new-build home, the scheme may not be suitable for you and could limit your choices compared to buying a property on the open market.

However, for someone struggling to save a large deposit, First Home could reduce one of the biggest upfront costs involved in buying a home.

For example, a 2.5% deposit on a £250,000 property would be £6,250, compared with £12,500 for a 5% deposit.

Buyers will still need to pass the lender's affordability checks and be able to meet their mortgage repayments.

And there are also other costs to consider such as stamp duty, solicitor's fees, surveys, mortgage fees and moving costs.

Are there other options for buying a home with a small deposit?

Yes, the mortgage market has opened up a lot in the last couple of years to help people into home ownership.

You can even get a mortgage with no deposit at all using a 100% mortgage.

For example, Skipton Building Society offers 100% 'track record' mortgage with no deposit if you have 12 months proof of paying rent each month.

You can also ask family members to guarantee your mortgage with Barclay's 100% LTV 'springboard' mortgage.

If you are thinking of buying a home but are struggling to save a deposit, it's worth visiting a mortgage broker who can discuss all the options that could be suitable for your exact circumstances.

What other help can first-time buyers get?

The new Your First Home scheme isn't the only support available to people trying to get onto the property ladder.

Depending on your circumstances and where you live, can also tap into other government-backed schemes and tax breaks.

• A Lifetime ISA (LISA) can be used to save towards your first home. You can save up to £4,000 a year, with the government adding a 25% bonus to your savings, up to a maximum of £1,000 a year.

• The First Homes scheme allows eligible first-time buyers in England to buy a property for 30% to 50% less than its market value.

• Shared ownership allows you to buy a share of a property, while paying rent on the remaining share owned by a housing association or other provider.