Your first home scheme: What buyers need to know about the 2.5% deposit

The government’s new Your First Home Scheme will help eligible first-time buyers purchase a new-build home with a deposit of at least 2.5%.

The scheme will combine the buyer’s deposit with a government equity loan worth 20% of the property’s value. The buyer will then need a repayment mortgage for the remaining amount.

The scheme has been confirmed, although applications are not expected to open until February 2027. Further details about eligible homes, developers and lenders will be published before applications open. www.gov.uk

How will the Your First Home Scheme work?

Under the scheme, eligible first-time buyers will provide a deposit of at least 2.5% of the purchase price. The government will provide an equity loan worth 20% of the property’s value, and the buyer will arrange a repayment mortgage for the remaining balance.

For example, a £300,000 home could be funded through:

• A £7,500 buyer deposit
• A £60,000 government equity loan
• A £232,500 repayment mortgage

The equity loan will be interest-free for the first five years. Interest will then increase gradually, so buyers should understand the longer-term costs before deciding whether the scheme is right for them.

Which properties could qualify?

The scheme will be available for eligible new-build homes in England sold by participating developers.

Household income limits and local property price caps will apply. The exact limits will depend on the buyer’s location and circumstances.

More information about eligible homes, participating developers and lenders will be published before applications open.

Could a 2.5% deposit make buying easier?

For many prospective homeowners, saving a deposit is one of the most difficult parts of buying their first property.

A lower minimum deposit could reduce the amount of time some buyers need to save. The equity loan could also reduce the size of the mortgage needed compared with buying with a standard 95% mortgage.

However, the deposit is only one part of affordability. Mortgage providers will still assess a buyer’s income, spending commitments, debts and credit history.

Buyers should also budget for other costs, including legal fees, surveys, mortgage fees, removals and the costs of furnishing or maintaining a new home.

What should buyers consider before using an equity loan?

Before making a decision, buyers should understand how the equity loan will work over the longer term.

Questions to consider include:

• How much interest will apply after the first five years?
• When must the equity loan be repaid?
• Can it be repaid early or in stages?
• How will the repayment amount be calculated?
• What happens when the property is sold or remortgaged?

Property values can rise as well as fall, so buyers should consider whether the home will remain suitable if their circumstances change.

Should first-time buyers wait for further details?

The Your First Home Scheme has been confirmed, but applications are not expected to open until February 2027.

Buyers should check the latest government guidance and speak to a qualified mortgage adviser to understand whether they may qualify.

Those planning to buy sooner may also wish to consider other options, such as low-deposit mortgages, shared ownership or purchasing a more affordable existing home.

Begin your search with Reeds Rains

The possibility of purchasing with a 2.5% deposit is likely to appeal to many aspiring homeowners. However, the final rules, costs and restrictions will determine whether the scheme is right for each buyer.

Reeds Rains can help you explore homes available in your chosen area and understand the steps involved in purchasing your first property.

Book a mortgage appointment today!

The Your First Home Scheme is not expected to open for applications until February 2027. Eligibility rules, property price caps, costs and timings may change. Seek qualified financial and legal advice before committing to a property purchase. Your home may be repossessed if you do not keep up repayments on your mortgage.

The information contained within was correct at the time of publication but is subject to change. This is for information purposes only and does not constitute advice.