5% deposit mortgages scheme

This scheme satisfies multiple Government grand ambitions.

5% deposit mortgages image

On Wednesday, the 3rd of March, the budget was announced, coupled with chancellor Rishi Sanuk’s unveiling of details of the Government housing scheme. The Government subsidies the 5% deposit, backing part of the loan themselves. While this will operate as a standard mortgage set-up for the buyers, the lender can be assured that the Government will cover a portion of the cost if the lender loses their money. The scheme has been designed to encourage more lenders to re-enter the 95% market. 

Large Mortgage Loans works with over 200 private lenders, who have already shown interest in supporting the scheme and following suit. 

For many, the prospect of saving for a 10% deposit was unattainable. Still, after the Government announced its plans to help buyers, there is a consensus that the scheme will help younger generations to get onto the property ladder. According to the land registry data as of December 2020, the UK’s average house price is £251,500. Therefore a 5% deposit required would work out as £5030. The average salary in the UK is £29,600 per year. Therefore somebody on an average salary living outside of London could save £419 per month over a year, manoeuvring them a perfect position to cover their deposit and get onto the property ladder. 

This scheme satisfies multiple Government grand ambitions. Firstly, it will help to mobilise the lower end of the property market. Secondly, it will support the levelling up narrative and policy, which is aimed to help boost growth in Scotland, Wales and Northern Ireland. “The greatest benefits for buyers in lower value housing markets in northern England and Scotland, where a 95 percent mortgage is more attainable,” says Paul Welch, CEO of Large Mortgage Loans

Buyers should keep their eyes open

Paul Welch, CEO of Large Mortgage Loans discusses how having a larger deposit can benefit buyers, “It’s pivotal that buyers keep their eyes open. The greater the deposit, the less risk there is for the lender, and therefore the buyer can leverage that to achieve better rates. Therefore, if you can achieve a 10% deposit, you will receive a better rate than 5% deposit mortgages.” 

Not only does a bigger deposit enable buyers to receive a lower interest rate, but they will also end up borrowing less: the bigger your deposit, the cheaper the monthly payment on your mortgage. Buyers should never stretch themselves beyond their means and should keep in mind that there are additional fees to factor into their finances, such as stamp duty (exempt until June 30th), legal fees, survey fees and furniture. Therefore buyers should factor these in when deciding on how much to save for a deposit.

Stamp duty land tax extension announced 

Coupled with the Government’s announcement to support a 5% deposit mortgage scheme, there was also an update for buyers hoping to capitalise on the Stamp duty land tax holiday scheme. Whereby homeowners can benefit from stamp duty land tax, no matter how much their property is worth. Homeowners purchasing worth less than £500,000 are entirely exempt from paying any stamp duty tax until June 31st 2021. To find out more about specifics relating to the stamp duty holiday, read our blog Use Bridging Finance to Help Beat the Stamp Duty Holiday Deadline

Swathes of estate agents, conveyancers and buyers trudge through ‘stamp duty traffic’ in a bid to get property transactions over the line just in time for the SDLT (Stamp duty land tax) holiday deadline of June 30th 2021. 

Speed up the buying process

There are a few fundamental principles to follow to streamline the buying process. Outlined below is a clear roadmap to help you to navigate the buying process effectively.

1. Start the legal process immediately

Clients that start the legal process before waiting for the mortgage offer are accepted. If you have a mortgage rejected, you must feel comfortable writing off the costs as a small loss, should the mortgage not be approved. 

2. Work with transparent professionals

Appoint advisors who will communicate with you throughout the mortgage process. An honest approach is essential for a conveyancers’ capacity to complete in a busy climate before reaching the end of your required timeline. Legal advisors have a higher workload than they can cope with, which is why it is a prudent choice to go with somebody open and transparent about the reality of the situation. 

largemortgaeloans.com communicates with estate agents and solicitors, and we keep a keen eye on moving chains to assess where all parties are concerning offers, valuations and contract legalities. A successful result is contingent on every part of the sequential process to run smoothly.

3. Local authority searches

Before a lender can issue you with funds, it is absolutely essential that you complete a Local Authority search. The information uncovered in a report is a necessary part of the home buying process and can even be used to renegotiate your offer, or it could even cause you to pull out of the purchase. 

Searches are currently taking much longer than the one to two week turnaround time you would typically expect and are expected to continue to do so until the stamp duty deadline on June 30th. Some Local Authorities are now taking months to return them; Hackney is a prime example.

4. Ask your solicitor for a realistic timeline 

Ask your solicitor how long searches will take for your specific property to allow sufficient time. The answer will dictate whether you use any lender for your mortgage loan or whether you will be restricted to those who are allowing search insurance in place of full searches. 

5. Consider search indemnity insurance

Search indemnity insurance is arranged by the solicitor and is generally cheaper than the searches themselves and can be put in place in one or two days. This is what is typically used for remortgages. The legalities for these can be completed in a couple of weeks or less.

6. Mortgage lenders 

Large Mortgage Loans works with lenders who are completely sincere and will take a realistic stance if your timeline is achievable. The result is that our borrowers never walk away disappointed. We research the best lenders on the market. When time is of the essence, we steer clear of smaller building societies with manual underwriting who can struggle in a situation with tight time constraints. Ensuring the case is fully packaged with all documents at the point of submission is vital.

7. Valuation delays 

Some lenders are experiencing significant valuation delays due to the stamp duty rush. Large Mortgage Loans will try to get an idea of valuation timescales and where the lender will allow it, discuss the option of instructing at the point of application. 

Large Mortgage Loans specialises in arranging mortgage deals to help you secure your dream property. If the 5% deposit mortgages scheme appeals to you, get in touch to discuss your with our team of friendly and knowledgeable advisors, who can help to find you a tailored solution.

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Having a larger deposit can benefit buyers.

Your home or property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. Changes in the exchange rate may increase the sterling equivalent of your debt. You may have to pay an early repayment charge to your existing lender if you remortgage. Think carefully before securing any other debts against your home.  

largemortgageloans.com is a trading name of Largemortgageloans.com Ltd, Aegon House, Ground Floor Suite, 13 Lanark Square, London, E14 9QD authorised and regulated by the Financial Conduct Authority (FCA). Our FCA registration number is 302228 and can be viewed by visiting the FCA website: www.fca.org.uk. The FCA does not regulate tax advice or some aspects of commercial, buy to let, overseas mortgages, bridging finance, finance and asset lending. Largemortgageloans.com Ltd is a licensed credit broker, and not a lender.

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