Is a 5% deposit a trap?
Some say it's the fastest way onto the ladder. Others say it's a trap. Both are partly right.
Higher rate, thinner equity, less room if prices dip. Sometimes still the right call. Depends on numbers nobody shows you.
A 5% deposit gets you buying sooner, which can mean years less renting. The government supports these mortgages through its Mortgage Guarantee Scheme, often called Freedom to Buy.
The trade-offs are real. Rates at 95% loan to value are usually higher than at lower loan to values, so the same home costs more each month. And with only 5% equity, a small fall in prices can leave you owing more than the home is worth. That matters if you need to sell or remortgage soon.
The guarantee is often misunderstood. It protects the lender, not you. If things go wrong, it covers part of the lender's loss. Your debt, your rate and your risk are the same as on any other 95% mortgage.
Whether it makes sense depends on the gap between your rent and the mortgage payment, how long you plan to stay, and how long saving a bigger deposit would take.
Where this information comes from
The government backs 5% deposit lending through its Mortgage Guarantee Scheme, often called Freedom to Buy. It was made permanent in July 2025, replacing the time-limited 2021–25 scheme.
Source: HM Treasury, 2025 Mortgage Guarantee Scheme. Checked 28 October 2026.
It covers mortgages at 91–95% loan to value, for first-time buyers and home movers anywhere in the UK. The loan must be a repayment mortgage, not interest-only, and not buy-to-let.
Source: HM Treasury, 2025 Mortgage Guarantee Scheme rules. Checked 28 October 2026.
The guarantee covers part of the lender's loss if the loan goes wrong. It's an agreement between the Treasury and the lender.
Source: HM Treasury, 2025 Mortgage Guarantee Scheme rules. Checked 28 October 2026.
General information, not advice about your circumstances. Rules and rates change; this page was last checked 28 October 2026. Spotted an error? Tell us.