Facts at a Glance
Your First Home: The 2.5% Deposit
- A 2.5% deposit is one of the proposed headline features of Your First Home.
- On a £300,000 property, 2.5% is £7,500.
- A 2.5% deposit is not automatically the same as a 97.5% mortgage. A proposed government equity loan may also form part of the funding.
- Final scheme rules, lender participation and mortgage structures are not yet confirmed.
- For the wider scheme, including eligibility and the proposed equity loan, see our Your First Home Scheme guide.
- Everest Mortgages is an independent, whole-of-market mortgage broker.
Introduction
Saving a large enough deposit can be one of the biggest challenges for first-time buyers. Even when someone believes they could afford the monthly cost of a mortgage, building up the money needed upfront can take years.
The proposed Your First Home scheme has attracted attention because it could allow eligible first-time buyers to purchase a qualifying new-build property with a deposit as low as 2.5%. For a buyer, that could make a significant difference to the amount they need to save.
For example, a 2.5% deposit on a £300,000 property would be £7,500, but there is an important distinction to understand. A 2.5% deposit does not simply mean that a buyer takes out a 97.5% mortgage.
The proposed scheme is expected to combine the buyer’s deposit with a government-backed equity loan of up to 20% of the property’s value, with the remaining funding potentially provided through a mortgage.
So how could this work in practice, and what could a 2.5% deposit mean for your mortgage?
For a broader explanation of the scheme, including who it is intended for and what has been announced so far, see our Your First Home Scheme guide.
Important: This Detail Is Not Yet Confirmed
Your First Home has been announced, but it is not yet a fully operational scheme. The 2.5% deposit structure, government equity loan terms, participating lenders, property and income limits, application process and other operational details are still subject to confirmation and may change.
The examples in this article are therefore illustrations of how the announced figures could work, rather than guaranteed mortgage arrangements or eligibility outcomes.
What Is a 2.5% Deposit?
A deposit is the amount of money a buyer contributes towards the purchase price of a property.
A 2.5% deposit means contributing 2.5% of the property’s purchase price.
This is lower than the 5% deposit that some first-time buyers may otherwise aim for, meaning the amount that needs to be saved upfront could be considerably smaller. However, having a 2.5% deposit would not by itself mean that a buyer could purchase any property at any price. The buyer would still need to meet the relevant scheme requirements and mortgage affordability criteria.
How Much Is a 2.5% Deposit?
For example, someone looking at a £300,000 property would need £7,500 for a 2.5% deposit.
If you’re unsure what different property prices could mean for your own deposit, you can use our Mortgage Calculator to start exploring your numbers.
How Could the 2.5% Deposit Work With Your First Home?
The proposed 2.5% deposit is expected to work alongside a government-backed equity loan of up to 20% of the property’s value.
To illustrate how the announced figures could fit together, consider a hypothetical £300,000 eligible property.
Example: £300,000 property
- Property price: £300,000
- 2.5% buyer deposit: £7,500
- Potential government equity loan of up to 20%: £60,000
- Remaining amount potentially funded through a mortgage: £232,500
These figures are illustrative only and are not guaranteed borrowing amounts. As above, the final scheme structure and lender criteria are still subject to confirmation.
For more information about the wider scheme and what has been announced so far, see our Your First Home Scheme guide.
Is a 2.5% Deposit the Same as a 97.5% Mortgage?
Not necessarily.
It would be easy to look at a 2.5% deposit and assume that the buyer simply needs a mortgage covering the other 97.5% of the property price. The proposed Your First Home structure is different.
The deposit is the buyer’s own contribution towards the purchase. The proposed government equity loan would form another part of the funding. The mortgage could then potentially cover the remaining amount.
Using the £300,000 example above:
£7,500 deposit + up to £60,000 potential equity loan + £232,500 potential mortgage = £300,000
This is why the proposed 2.5% deposit should not automatically be described as a 97.5% mortgage.
The exact mortgage structure will depend on the lender and the buyer’s individual circumstances.
How Much Could You Need to Borrow With a 2.5% Deposit?
The amount you may need to borrow depends on the property’s price and the final structure of the scheme. The following examples show how the announced figures could look if the maximum proposed 20% equity loan were used.
These figures are illustrative only and are not guaranteed borrowing amounts.
Does Having a 2.5% Deposit Mean You Can Afford a Home?
Not necessarily.
A smaller deposit could help someone overcome one of the biggest barriers to buying their first home: saving enough money upfront, but the deposit is only one part of the mortgage assessment.
A lender would still need to consider factors such as:
- Your income
- Your existing financial commitments
- Your regular expenditure
- Your credit history
- The amount you are looking to borrow
- The property you want to buy
- The lender’s affordability and eligibility criteria
For example, someone may have enough savings to cover a 2.5% deposit but not have sufficient borrowing capacity for the property they want to purchase. Equally, another buyer may have a suitable income and affordable monthly payments but have struggled to save a larger deposit. Understanding your potential borrowing position can therefore be useful before assuming that a particular property is affordable.
You can start by using our Mortgage Calculator, or find out more about our First-Time Buyer Mortgages.
What Are the Advantages of a 2.5% Deposit?
For some first-time buyers, the main potential advantage is straightforward: less money may need to be saved before they can consider buying.
A lower upfront saving requirement
A 2.5% deposit is significantly smaller than a 5% deposit.
On a £300,000 property:
- 2.5% = £7,500
- 5% = £15,000
That £7,500 difference could be significant for someone who is currently renting while trying to save.
A potential faster route to buying
For buyers who can potentially afford the mortgage but are struggling to build a larger deposit, needing less upfront could potentially bring their plans forward.
It could help deposit-constrained buyers
Some first-time buyers may have stable income and be able to manage monthly housing costs but find saving a larger deposit difficult alongside rent and other household expenses. For those buyers, the deposit requirement could be the main barrier the proposed scheme helps address.
However, a smaller deposit does not remove the other requirements involved in buying a home.
What Are the Limitations of a 2.5% Deposit?
A 2.5% deposit could reduce the amount a buyer needs to save, but there are still important limitations to consider.
First, having the deposit does not guarantee mortgage approval. The buyer would still need to meet the relevant affordability and lender criteria.
Second, the proposed Your First Home scheme is intended for eligible new-build properties from participating developers, meaning the choice of properties will be more limited than across the wider housing market.
There is also the proposed government equity loan to consider. An equity loan is not the same as a grant, and buyers will need to understand its eventual repayment arrangements and costs. As above, the final scheme rules are still subject to confirmation.
For the wider eligibility requirements and current status of the scheme, see our Your First Home Scheme guide.
If you’re considering a new-build property, you can also explore our New Build Mortgages guide, subject to the page being available.
Case Study: A First-Time Buyer With a 2.5% Deposit
The challenge
The buyer was a first-time buyer looking at a £300,000 new-build property. They had saved £7,500, which represented 2.5% of the property’s purchase price, but were concerned that their relatively small deposit could limit their mortgage options. They believed they could potentially afford the monthly mortgage payments but were finding it difficult to build a larger deposit while also paying rent and managing their other household costs.
Our approach
We looked at the buyer’s overall financial position rather than focusing solely on the size of their deposit. This included considering their income, existing commitments, potential borrowing and the property they were considering.
We also considered how the proposed Your First Home structure could potentially work alongside their deposit. Under the announced scheme, an eligible buyer could potentially use a 2.5% deposit alongside a government-backed equity loan of up to 20% of the property’s value, with the remaining funding potentially provided through a mortgage.
As the scheme has not yet been fully implemented, the final eligibility requirements, lender participation and mortgage structure would still need to be confirmed.
The outcome
The exercise helped the buyer understand that having a smaller deposit does not automatically prevent them from considering a purchase, but it also does not guarantee that a mortgage will be available.
By looking at their wider financial position and potential borrowing rather than focusing only on the £7,500 deposit, they could get a clearer understanding of what may be possible and what they would need to consider before moving forward.
Broker Insight: What First-Time Buyers Often Misunderstand About a 2.5% Deposit
A common misunderstanding is that having a 2.5% deposit automatically means you can borrow the remaining amount needed to buy a property.
It doesn’t work that way.
The deposit is only one part of the overall mortgage picture. A lender will still look at your income, existing commitments, affordability and the property you’re looking to buy. The proposed Your First Home structure may also involve a government-backed equity loan, so buyers need to understand how all of the funding fits together rather than simply thinking of the scheme as a 97.5% mortgage.
For someone who has £7,500 saved, that could be enough to represent a 2.5% deposit on a £300,000 property. But the important question is whether the overall purchase is affordable and whether the buyer meets the final scheme and lender criteria. The scheme could potentially help people whose main barrier is saving a large deposit, particularly those who can potentially afford the monthly mortgage costs but are struggling to save while paying rent. However, a smaller deposit doesn’t remove the need to understand what you can realistically afford.
What Should I Do If I Only Have a Small Deposit?
You don’t necessarily need to wait for every detail of Your First Home to be confirmed before understanding your own financial position.
If you’re considering buying with a smaller deposit, you could start by:
1. Work out how much you have saved
Compare your current savings with the amount you would need for a 2.5% deposit at different property prices.
For example, £7,500 would represent 2.5% of a £300,000 property.
2. Review your income and commitments
Look at your income and regular financial commitments to get a clearer picture of what might be affordable.
3. Understand your potential borrowing
Your deposit is only one part of the purchase. Understanding how much you may potentially be able to borrow can help you set a more realistic property budget.
4. Consider whether you would be open to buying a new-build
The proposed scheme is focused on eligible new-build properties, so consider whether this type of property would suit your plans.
5. Understand your mortgage position early
Getting a clearer idea of your potential mortgage position can help you understand what may be realistic before you start making plans around a particular property or scheme.
You can use our Mortgage Calculator to explore your figures, or read our 2026 First-Time Buyer Mortgage Guide for more information.
You can also explore our First-Time Buyer Mortgages and return to our Your First Home Scheme guide for the wider scheme information.
Your First Home 2.5% Deposit FAQs
If you’re considering buying with a smaller deposit, you may have questions about how the proposed 2.5% deposit could work in practice. Here are some of the common questions first-time buyers may have.
How much is a 2.5% deposit on a £300,000 house?
A 2.5% deposit on a £300,000 property would be £7,500.
How much is a 2.5% deposit on a £250,000 property?
A 2.5% deposit on a £250,000 property would be £6,250.
Is a 2.5% deposit the same as a 97.5% mortgage?
No, not necessarily. Under the proposed Your First Home structure, a government-backed equity loan could form part of the purchase funding alongside the buyer’s deposit and mortgage. The final mortgage structure has not yet been confirmed.
Does the government equity loan cover the rest of the deposit?
No. The proposed equity loan is a separate part of the purchase funding. The scheme announcement describes a government-backed equity loan of up to 20% of the property’s value, alongside the buyer’s deposit and mortgage.
Will I still need to pass a mortgage affordability assessment?
Yes, having a 2.5% deposit would not by itself guarantee mortgage approval. Any mortgage would remain subject to the relevant lender’s affordability and eligibility criteria.
Can I use a 2.5% deposit for an existing property?
The announced scheme is focused on eligible new-build properties from participating developers. The final operational details are still to be confirmed.
For the wider scheme requirements, see our Your First Home Scheme guide.
Can I apply for the 2.5% deposit scheme now?
Your First Home has been announced but is not yet fully operational. The final scheme details, participating lenders and implementation arrangements still need to be confirmed.
Ready to Understand Your Mortgage Position?
You don’t have to wait for every detail of Your First Home to be confirmed before understanding your own mortgage position.
If you’re a first-time buyer with a smaller deposit, we can help you look at your potential borrowing, deposit and wider mortgage options so you have a clearer idea of what may be possible.
Book a Free Mortgage Consultation
Disclaimer
Your First Home is a Government policy that has been announced but has not yet been confirmed in full. The information in this article is based on the details announced so far and may change as further information is published. The 2.5% deposit, proposed government equity loan, lender participation, eligibility criteria, costs and implementation arrangements remain subject to the final scheme rules.
Mortgage availability, affordability and eligibility depend on individual circumstances and lender criteria. Your home may be repossessed if you do not keep up repayments on your mortgage.
