The rise of the 2% deposit mortgage: can first-time buyers purchase with such a small deposit?

The rise of the 2% deposit mortgage

 

More banks and building societies are offering 2% deposit mortgages as competition to attract first-time buyers intensifies.

Saving a traditional 5% or 10% deposit remains one of the biggest obstacles facing many people who want to buy their first home. High rents, living costs and property prices can make it difficult to build a sizeable deposit, even for applicants with good salaries and a strong record of managing their finances.

Mortgage lenders are responding by launching products that allow eligible first-time buyers to purchase with a deposit of just 1% or 2%. There are also mortgages requiring a fixed cash deposit of £5,000 or £10,000, alongside several no-deposit options.

Santander, Leeds Building Society, Halifax, Newcastle Building Society, The Cambridge Building Society and Aldermore are among the lenders offering, or introducing, mortgages designed for buyers with very small deposits. 

These products could help more renters discover that buying a property may be closer than they think.

How does a 2% deposit mortgage work? Which lenders offer 98% mortgages?

A 2% deposit mortgage allows a buyer to borrow up to 98% of the property’s value.

For example, someone purchasing a £250,000 property with a 2% deposit would need to provide £5,000 and borrow the remaining £245,000. This is known as a 98% loan-to-value, or LTV, mortgage.

Some lenders advertise these products according to the percentage deposit required, while others set a minimum cash deposit. The amount needed can therefore depend on the property price and the lender’s individual criteria.

Importantly, buyers will usually need additional savings to cover costs such as legal fees, surveys, mortgage fees, removals and, where applicable, Stamp Duty. The deposit should not be treated as the only upfront cost.

The number of lenders targeting buyers with very small deposits has increased significantly. They include:

• Santander My First Mortgage

Santander’s My First Mortgage allows eligible first-time buyers to borrow up to 98% of a property’s value with a minimum deposit of £10,000.

The mortgage is available for loans between £190,001 and £500,000 and comes with a five-year fixed rate. It is not available on flats, new-build homes or properties in Northern Ireland. For joint applications, both applicants must be first-time buyers. 

All lending remains subject to Santander’s broader affordability checks, including a maximum loan-to-income multiple of 4.45x salary.

• Leeds Building Society Start Mortgage

Leeds Building Society offers its Start Mortgage at up to 98% LTV for first-time buyers. Its range includes a five-year fixed-rate mortgage with no product fee and a maximum loan of £500,000. As with other low-deposit mortgages, applicants must pass the lender’s affordability, credit and property checks. The maximum income multiple is up to 5x their household income, subject to a minimum £30,000 gross household income.

• Halifax £5k Deposit Mortgage

Halifax offers a five-year fixed repayment mortgage for eligible first-time buyers with savings of £5,000. The property you want to buy must be worth between £102,000 and £300,000.

Depending on the purchase price, the mortgage can allow an applicant to borrow more than 95% of the property’s value. Halifax introduced the current version of its £5k Deposit Mortgage in May 2026. 

The property will need to be your only place of residence, and you must not have an interest in any other properties such as a second home or buy to let.

• Newcastle Building Society First Step

Newcastle Building Society’s First Step mortgage allows eligible buyers to borrow up to 98% of the property’s value. The minimum deposit is 2% or £5,000, whichever is higher. Mortgage amounts range from £96,000 to £350,000 and the product is offered on a five-year fixed-rate basis.

The deposit must come from the applicant’s own resources rather than being gifted, loaned or supplied by a third party. 

• The Cambridge First Step Mortgage

The Cambridge Building Society has also introduced a First Step mortgage requiring a minimum 2% deposit. It offers two and five-year fixed-rate options and may accept gifted deposits, subject to its lending criteria. 

• Aldermore mortgages up to 98% LTV

Aldermore has announced an increase in its maximum residential LTV to 98% for employed applicants as part of a wider overhaul of its residential mortgage range.

The specialist lender is also introducing a tiered proposition aimed at borrowers whose circumstances may not fit standard high-street lending criteria.

Even if you've had previous bad credit, such as CCJs and defaults, as long as they were registered over three years ago, even if they're not satisfied, you could still be eligible.

Can you get a mortgage without a deposit?

There are also mortgages that may allow eligible applicants to buy without providing a conventional cash deposit.

Skipton Building Society’s Track Record Mortgage is aimed at renters and can be available with a deposit of less than 5% or no deposit at all.

Applicants normally need to demonstrate that they have paid their rent for 12 consecutive months during the previous 18 months. They must also meet Skipton’s affordability, credit history and property requirements. 

Other no-deposit arrangements involve help from a family member. Instead of giving the buyer a deposit, a relative may place money into a linked savings account or provide another form of security to the mortgage lender. This is available through the Barclays Helping Hand scheme. 

These family-assisted mortgages can be useful, but the family member’s savings may be tied up for several years and could be at risk if the mortgage payments are not maintained.

Is it better to provide a 5% or 10% deposit?

Buyers who can provide a 5% or 10% deposit will generally have access to a wider range of lenders and more competitively priced mortgage deals.

This is because the lender is advancing a smaller proportion of the property’s value, reducing its potential exposure if the borrower cannot maintain the payments and the property has to be sold.

Even moving from a 2% deposit to a 5% deposit could provide access to more products. A 10% deposit will usually open up an even broader selection of fixed and tracker rates.

However, waiting to save a larger deposit is not necessarily the right decision for everyone. During that period, the buyer may continue paying rent, property prices could change and their personal circumstances may alter.

The decision should be based on the monthly cost, the overall cost of the mortgage, the buyer’s financial security and how long they expect to remain in the property—not simply the size of the deposit.

What are the risks of a 98% mortgage?

A 98% mortgage can provide a valuable route onto the property ladder, but buyers need to understand the additional risks.

The most significant concern is negative equity. This happens when the outstanding mortgage becomes greater than the property’s value. Someone buying with a 2% deposit starts with relatively little equity, so even a modest reduction in the property’s value could place them in negative equity.

Negative equity may make it harder to sell the property or remortgage to another lender. It may be less of an immediate issue for buyers who intend to remain in the property for many years and can continue making their payments. Nevertheless, the risk should be taken seriously.

Higher mortgage rates

Low-deposit mortgages will usually have higher interest rates than equivalent products requiring a 5%, 10% or larger deposit.

The difference between lenders can also be substantial. Applying to the wrong lender could result in a borrower locking into a higher fixed rate than necessary.

Restricted property types

Some lenders will not offer their highest-LTV mortgages on new-build homes, flats, unusual properties or homes in certain locations.

The property must also be acceptable to the lender’s valuer. A buyer could pass the affordability assessment but still find that their chosen property is unsuitable for a particular mortgage product.

Limited remortgage options

If the property value remains unchanged and little of the mortgage balance has been repaid by the end of the fixed period, the borrower may still have a very high LTV.

This could limit the number of remortgage deals available. Buyers should therefore consider what might happen when the initial fixed rate ends, rather than focusing solely on the cost of the mortgage today.

Who could benefit from a 2% deposit mortgage?

These mortgages may be particularly helpful for:

• First-time buyers paying high monthly rents.

• Applicants with good incomes but limited savings.

• Buyers who cannot rely on the Bank of Mum and Dad.

• Renters with a strong payment history.

• People who have enough money to cover purchasing costs but cannot raise a traditional 5% or 10% deposit.

• Buyers who expect to remain in their new home for the medium to long term.

Applicants will still need to pass detailed affordability and credit checks. Having a 2% deposit does not automatically mean a lender will provide the remaining 98%.

Why comparing low-deposit mortgages is so important

Very-low-deposit mortgage rates, fees and eligibility rules can vary significantly.

One lender may accept the applicant’s deposit but reject the property type. Another may offer a more suitable rate but lend less based on the applicant’s income. Some products allow gifted deposits, while others require every pound to come from the buyer’s own savings. There can also be restrictions relating to maximum property values, loan sizes, employment type, credit history and whether every applicant is a first-time buyer.

Aaron Strutt, product director at Trinity Financial, says: “Many renters are still unaware that 1%, 2% and even no-deposit mortgages are available. They often assume they need tens of thousands of pounds before they can consider buying their first property.

“The increase in 98% mortgage options is good news for buyers with stable incomes who can afford the monthly payments but struggle to save while paying high rents. These mortgages will not be suitable for everyone. The rates can vary considerably, the lending criteria are often quite specific and buyers need to understand the potential risk of negative equity.

“It is particularly important to compare the market carefully. It does not make sense to lock into a more expensive five-year fixed rate simply because you approached the wrong lender or were unaware that another product was available.”

Speak to a Trinity Financial adviser today

The mortgage market moves fast — and the right advice can make a significant difference to the rate and deal you secure. Get in touch with our team to discuss your options.

Call Trinity Financial on 020 7016 0790 to secure a fixed low deposit mortgage, book a consultation, or use our appointment calendar

The information contained within was correct at the time of publication but is subject to change. It is for general information purposes and is not advice.

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