New Low-Deposit Mortgage Options for First-Time Buyers in 2025

In today's challenging housing market, securing that crucial first step onto the property ladder remains a significant hurdle for many aspiring homeowners. The primary obstacle? Saving for a substantial deposit while juggling rising living costs.

However, recent developments in the mortgage market are offering new rays of hope for first-time buyers with limited savings. TSB's latest mortgage innovation stands out as particularly noteworthy for those eyeing new-build properties.

TSB Extends 95% LTV Mortgages to New-Build Properties

TSB has recently expanded its mortgage offerings by extending its 95% loan-to-value (LTV) ratio to include new-build properties—both houses and flats. This significant move places TSB among the most accommodating lenders in the current market for first-time buyers with minimal deposits.

While TSB had previously offered 95% LTV mortgages for older properties, this extension to new-build homes opens fresh avenues for buyers who prefer modern properties but have been constrained by deposit requirements.

Understanding the Trade-offs: Higher LTV, Higher Costs

While lower deposit requirements undoubtedly improve accessibility, it's crucial to understand the financial implications over the long term. Higher LTV mortgages typically come with higher interest rates to offset the increased risk to lenders.

Current TSB rates for these new offerings are:

• 5.69% for a fixed two-year mortgage at 95% LTV
• 5.39% for a fixed five-year mortgage at 95% LTV

By comparison, those able to provide a 15-20% deposit (80-85% LTV) would access significantly lower rates:

• 5.04% on a fixed two-year mortgage
• 4.64% on a fixed five-year mortgage

The New-Build Premium: Special Considerations

New-build properties often come with what industry experts call a "new-build premium"—they tend to be priced higher than comparable existing properties, and this premium can diminish once the property is no longer brand new.

"If you need to sell and there's an almost identical brand new home available then it may be harder to get the same price. However, those who are buying for the longer term should see that fade with time and smooth out any ups and downs in the market." — David Hollingworth from L&C Mortgages

This consideration is particularly important for those entering with minimal equity, as it increases the risk of negative equity if property values decline in the short term.

Beyond TSB: The Wider Market for First-Time Buyers

TSB's move reflects a broader market trend toward supporting first-time buyers with limited deposits. Other notable options include:

1. Nationwide's Enhanced Income Multiplier: Allowing people with a 5% deposit to borrow up to six times their income on five or 10-year fixed-rate deals—significantly higher than the traditional 4.5x income multiple.
2. Shared Ownership Extensions: TSB has also extended its 95% LTV offering to shared ownership properties, with rates starting at 5.49% for a zero-fee, five-year fixed product (including £500 cashback).
3. Additional Market Innovations: Some lenders are now exploring no-deposit options with family guarantors or equity loan components.

Alternative Pathways to Homeownership

For those finding even a 5% deposit challenging, several alternative schemes exist:

Shared Ownership

This scheme allows you to purchase a share of a property (starting from 10%) and pay rent on the remainder. As your financial situation improves, you can purchase additional shares through a process called "staircasing."

With Shared Ownership, your deposit requirement is based only on the share you're purchasing. For a £250,000 property, buying a 25% share (£62,500) with a 5% deposit means providing just £3,125 initially.

Joint Borrower, Sole Proprietor (JBSP) Mortgages

These arrangements allow family members to contribute their income toward mortgage affordability calculations without being named on the property deeds. This can significantly boost borrowing capacity for first-time buyers while keeping the property in their name only.

First Homes Scheme

Available in England, this government initiative offers select new-build properties at discounts of 30-50% below market value. The discount remains with the property for future eligible buyers, creating permanently affordable housing.

Market Outlook and Strategic Considerations

The recent Bank of England interest rate cut had briefly pushed mortgage rates downward, but unexpected inflation figures have created uncertainty, with some brokers warning of potential rate increases ahead.

Additionally, changes to stamp duty are scheduled for April 2025, which could increase purchase costs for many buyers.

If you're considering a purchase in the next 3-6 months, speaking to a mortgage broker now to secure a rate lock could protect you from potential rate increases while you complete your property search. Speak to one of our advisors today at 029 2167 0060 or specialist@cffl.co.uk. If you prefer get a quote online below.

The Broker Advantage

Nicholas Mendes of mortgage expert John Charcol emphasizes: "Speaking to a mortgage broker can be invaluable, as they have access to a wide range of lenders and can help buyers find the best deal based on their individual circumstances. A broker can also advise on alternative schemes that might be more suitable and ensure buyers understand the long-term implications of their mortgage choice."

As brokers, we have access to market-wide options that aren't always available directly to consumers, including exclusive rates and specialized lending criteria that might be particularly suitable for unique circumstances.

Making Your Decision: Short-Term Access vs. Long-Term Value

The fundamental question for many first-time buyers is whether to:

1. Get on the property ladder sooner with a smaller deposit but higher ongoing costs
2. Continue saving for a larger deposit while potentially facing rising property prices

This isn't a one-size-fits-all decision. Your personal circumstances, local property market trends, career trajectory, and broader financial goals all play important roles in determining the optimal approach.

A thorough affordability assessment should look beyond the basic mortgage acceptance criteria. Consider potential interest rate changes, career developments, and family planning to ensure your mortgage remains affordable through various life stages.

Conclusion: A Balanced Approach

TSB's extension of 95% LTV mortgages to new-build properties represents a significant opportunity for deposit-constrained first-time buyers. However, the optimal mortgage strategy balances immediate accessibility with long-term financial prudence.

Whether this new offering is right for you depends on your specific circumstances, priorities, and long-term plans. As mortgage brokers, our role is to help you navigate these complex decisions with personalized advice that considers all aspects of your financial journey.

The path to homeownership has many routes—finding the one that best aligns with your circumstances is key to not just getting on the property ladder, but doing so in a financially sustainable way.

For personalized mortgage advice tailored to your specific circumstances, contact our team of experienced mortgage brokers today. We're here to help you navigate the complex mortgage landscape and find the solution that best meets your needs.