11th November 2026
For many people trying to buy their first home, saving a substantial deposit has become one of the biggest obstacles to getting onto the property ladder. House prices have risen considerably faster than many wages, rents consume a large proportion of household income, and putting aside enough money for a deposit can take years.
Against this background, low-deposit mortgages are becoming increasingly popular. They offer buyers the opportunity to purchase a property with as little as 5% deposit, rather than the more traditional 10% or 15%.
At first sight, this looks like good news. More people can potentially become homeowners instead of spending years renting. But there is another side to the story. Buyers are taking on larger debts, lenders are accepting greater risks, and there are questions about whether easier access to mortgages could contribute to further house price inflation.
The figures suggest that this is becoming an increasingly important feature of the UK housing market.
More buyers are borrowing a larger proportion of the purchase price
Figures analysed from the mortgage market show that lending requiring deposits below 10% has increased significantly. Mortgages of this type reached £24.7 billion in the year to June 2026, compared with £17.9 billion in the previous year, an increase of 38%.
The trend is particularly important for first-time buyers, who generally have less accumulated wealth and fewer opportunities to draw on housing equity from an existing property.
Office for National Statistics figures show that the median loan-to-value ratio for first-time buyers in 2025 reached 85.6%, its highest level since before the financial crisis. In Scotland, the figure was even higher at 89.7%.
In other words, the typical Scottish first-time buyer was borrowing almost 90% of the property's value.
This reflects the difficulty of saving a deposit while also paying rent, household bills and other living expenses.
The risks for buyers
Consider someone purchasing a property for £200,000.
With a 5% deposit, they need £10,000 and must borrow £190,000. With a 10% deposit, they would need £20,000 and borrow £180,000.
That additional £10,000 borrowing might not sound enormous compared with the purchase price, but it increases monthly repayments and the total interest paid over the life of the mortgage.
The bigger danger is what happens if circumstances change.
Someone buying with a 5% deposit has very little equity in their property. If house prices fall by 5%, their initial equity could disappear. A larger fall could leave them in negative equity, meaning the outstanding mortgage is greater than the property's market value.
Negative equity does not automatically mean someone loses their home, particularly if they can continue making repayments. However, it can make moving house, refinancing or selling considerably more difficult.
There is also the risk of interest rates. A buyer who has stretched their finances to secure a property may find that when their fixed-rate mortgage expires, the new monthly repayments are significantly higher.
Then there are the ordinary costs of home ownership. Boilers fail, roofs need repairs, appliances break down and buildings require maintenance. A household that has used almost all its savings to fund a deposit may have little money available when something goes wrong.
The ability to obtain a mortgage should not be confused with the ability to comfortably afford one.
What about the lenders?
Mortgage providers also face greater risks when lending 90% or 95% of a property's value.
A lender providing a mortgage covering 80% of a property's value has a much larger cushion if the borrower defaults and the property has to be sold.
With a 95% mortgage, that protection is much smaller.
If property prices fall, the lender could find that selling the property does not recover the outstanding loan and the costs involved.
There is also the possibility of rising arrears if household finances deteriorate. Unemployment, illness, relationship breakdown and increases in essential living costs can all affect the ability to maintain mortgage repayments.
Lenders do undertake affordability assessments, and UK mortgage regulation is considerably stronger than it was before the 2008 financial crisis. But no affordability test can predict every change in someone's circumstances over a mortgage lasting 25 or 30 years.
Are we heading towards another 2008?
Comparisons with the financial crisis are inevitable whenever mortgage lending expands and buyers take on larger debts.
Before 2008, some lenders were prepared to offer mortgages with relatively weak affordability checks and inadequate consideration of borrowers' ability to repay. When house prices fell and borrowers began defaulting, the consequences spread through the financial system.
There are important differences today. Mortgage regulation, affordability assessments and stress testing provide stronger safeguards. The existence of more 5% deposit mortgages does not mean another financial crisis is approaching.
Nevertheless, the underlying principle remains relevant. The more households borrow relative to the value of their homes and their incomes, the more vulnerable they can become to economic shocks.
A housing market that depends increasingly on people borrowing the maximum available deserves careful scrutiny.
Could easier mortgages simply push house prices higher?
There is another problem that receives less attention.
If the main reason people cannot afford homes is that property prices are too high compared with wages, allowing them to borrow more does not necessarily solve the problem.
It may simply increase the amount of money buyers can offer for the same limited supply of properties.
That could push prices higher, making housing even less affordable for those who have not yet entered the market.
It is a familiar economic problem. Increasing the availability of credit can help individuals in the short term, but if the supply of housing does not increase sufficiently, some of the benefit may end up with existing property owners through higher prices.
Britain needs more suitable housing, particularly in areas where demand is strongest. Easier access to mortgages is not a substitute for a housing construction programme that delivers homes people can actually afford.
Scotland faces its own challenges
The Scottish figures are particularly interesting because first-time buyers are borrowing an even higher proportion of property values than the UK median.
There are considerable differences between the housing markets of Edinburgh and Glasgow, the commuter towns around the central belt, and rural areas such as Caithness and Sutherland.
In some rural communities, the problem is not simply the purchase price. It is the availability of suitable properties, local employment opportunities and the difficulty of finding affordable housing for younger people who want to remain in the area.
A mortgage market that makes it easier to borrow more may help some buyers, but it cannot resolve the wider problems of housing supply, affordability and local economic opportunity.
A mortgage approval is not a guarantee of financial security
There is nothing inherently wrong with a 5% deposit mortgage. For someone with secure employment, a realistic budget and sufficient spare income, it may provide a perfectly sensible route into home ownership.
But buyers should consider what happens if mortgage rates rise, their income falls or they face an unexpected repair bill. Keeping some savings aside after purchasing a property can be just as important as getting the keys.
Lenders also need to ensure that competition for new customers does not encourage them to relax standards simply to increase mortgage volumes.
Ultimately, the housing market should not depend on continually increasing the amount people are prepared or able to borrow.
There is a fundamental difference between helping people afford a home and helping them borrow more money to purchase an increasingly expensive one.
For first-time buyers, the attraction of finally owning a property is understandable. But a house should provide security, not become a financial burden that dominates the rest of their lives.
The question policymakers, lenders and buyers should be asking is whether low-deposit mortgages are genuinely improving access to home ownership, or simply allowing households to take on more debt to keep Britain's expensive housing market moving.
The cost-of-living trap: what happens when household bills rise?
There is another danger for first-time buyers that deserves much greater attention: the continuing cost of living.
A mortgage affordability assessment is based largely on a household's income and expected expenditure at the time the loan is arranged. But household costs do not remain static, and the next few years could prove particularly challenging.
Energy bills are a good example. The Ofgem price cap currently stands at £1,723 a year for a typical household paying by Direct Debit. However, forecasts suggest that the January 2027 cap could rise considerably, with some estimates pointing to an increase of around 28%. The final figure will not be confirmed until November.
For someone who has just taken on a large mortgage, this could be another unwelcome pressure on household finances.
And energy is only one part of the problem. Council tax, food, home insurance, transport, water charges and general household maintenance all compete for the same limited disposable income.
Consider a young couple who have managed to buy their first home with a 5% deposit. They may have stretched themselves to obtain the mortgage, used most of their savings and calculated that their combined salaries will comfortably cover the monthly repayments.
But what happens when their energy bills rise, food becomes more expensive, their car needs replacing or one of them experiences a period without work?
A household that initially appeared financially secure can find itself struggling surprisingly quickly.
There is also a wider economic consequence. If millions of households find themselves with less money available after paying their mortgages and essential bills, spending in local shops, restaurants and other businesses could suffer.
This creates a potential knock-on effect for the wider economy.
The problem is that mortgage lenders may approve a loan based on what a household can afford today, while borrowers have to live with the consequences of what everything costs tomorrow.
For first-time buyers, the question should not simply be whether they can afford the mortgage payment. It should be whether they can afford the mortgage, energy bills and the rest of household life, while still having enough money left for savings and unexpected expenses.
Getting onto the property ladder is an important achievement. But becoming a homeowner only to find that almost every pound of income is committed to mortgage repayments and essential bills is hardly the financial security people hoped to achieve.
Rachel Springall, Finance Expert at Moneyfacts, said: “The churn of mortgage products continued in October, with rises and falls at opposite ends of the loan-to-value (LTV) spectrum. At the lower end, the number of deals at 60% LTV fell to its lowest point since March 2024 yet deals at 95% LTV rose month-on-month. Due to choice contracting slightly at lower LTVs, the Moneyfacts average LTV of a core mortgage product has reached a record high of 79.31%, its highest point since electronic records began in November 2011.
This shift comes at a time when lenders have faced months of uncertainty surrounding the path of interest rates, and wider market concerns over weak demand for property amid a cost of living crisis. In an attempt to help more people buy their first home, the Government’s Your First Home scheme opens for pre-registration next month, to allow new buyers to check their eligibility. Applications are opening in February 2027 to provide an equity loan of 20% towards a new build purchase.
“Affordability constraints among first-time buyers can lead them to seek out higher LTV options, or decide to borrow at a larger loan-to-income ratio, say over five times their income, with the aim of stretching their budget to secure a home. The time it takes to raise a substantial deposit is a key hurdle, and the average age is higher as a result, now around 33 compared to 31 a decade ago, according to UK Finance, with the typical deposit around 120% of gross income.
Yet, over this period, the idea of stepping onto the first rung of a ‘property ladder’ is losing its appeal and is being bypassed. Instead, the desire for a bigger home for longer is making up a higher share of purchases. Skipping smaller starter homes altogether can disrupt the circulation of property, which could have the repercussion of bottlenecking the wider market. New buyers are borrowing bigger loans against properties as a result, as, according to the ONS, the median LTV ratio for first-time buyers in 2025 was 85.6%, which was the highest level recorded since before the 2008 financial crisis. First-time buyers are also securing homes worth a higher multiple of their income, with the income ratio up to 4.3 in 2025 from 3.7 in 2006, according to the ONS.
As affordable housing remains in short supply, lenders will need to work hard to loosen affordability barriers without increasing risk in line with new rules, and continue to innovate products to help new buyers, and support their existing mortgage customers.”