Can a 2.5% deposit change the first-time buyer market?
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A new government-backed homeownership scheme could allow first-time buyers in England to purchase a new-build property with a deposit of just 2.5%.
The Your First Home scheme is expected to offer eligible buyers a government equity loan worth 20% of a property’s value. The rest of the purchase would be funded through the buyer’s deposit and mortgage.
Full details are due to be confirmed at the Budget. The scheme will apply to new-build homes sold by participating developers. The equity loan will have an initial interest-free period, while household income limits and local property price caps will determine who can take part. Developers will also be expected to contribute towards the cost of the programme.
The average first-time buyer property in England cost about £245,500 in July 2026. A 2.5% deposit on a property at that price would be about £6,140. A 5% deposit would be roughly £12,275, while a 10% deposit would require around £24,550.
For some households, that lower entry cost could reduce the number of years needed to save for a home. Yet the deposit is only one part of the affordability calculation.
A smaller deposit solves only part of the affordability problem
First-time buyers will still need to secure a mortgage for the remaining private share of the purchase. Their ability to do so will depend on income, mortgage rates, lending criteria and monthly household costs.
The government says the scheme is aimed at people who would otherwise be unable to afford their first home. It also says the equity loan could reduce monthly mortgage costs compared with taking out a 95% mortgage.
The final terms will therefore matter as much as the headline deposit figure.
An equity loan creates a separate financial commitment alongside a mortgage. Buyers need to understand how that loan changes if the value of their property rises or falls and what happens when they come to repay it.
The previous Help to Buy scheme shows why this matters. More than 387,000 properties were purchased through Help to Buy between 2013 and 2023, including about 328,000 purchases by first-time buyers.
A government-commissioned evaluation found evidence that the scheme increased access to homeownership and supported housing supply. It also found that its effects varied considerably by location.
The research identified some longer-term difficulties for borrowers. Some customers had a limited understanding of future interest payments and the way repayments were linked to the current value of their property rather than the original purchase price. Some also reported difficulties with the repayment process.
Those findings provide an important reference point for Your First Home. A lower deposit may make a purchase possible sooner, but buyers will also need clear information about the financial commitment they are making over the life of the loan.
Local price caps could shape who can use the scheme
The restriction to new-build homes will also affect how widely the scheme can be used.
Official figures show a sizeable difference between average new-build and existing property prices in England. The average new-build price stood at about £398,000 in May 2026, compared with about £288,000 for an existing property.
Recent new-build figures are based on fewer transactions and are subject to revision, so national averages should be treated with care.
In July, the average first-time buyer price ranged from about £145,900 in the North East to almost £466,900 in London. A single national price limit would therefore have very different effects depending on location.
The proposed local property price caps could help account for these differences.
If caps are set too low in more expensive areas, relatively few homes may qualify. If they are set much higher, more government-backed finance could be directed towards properties that remain unaffordable for households on typical incomes.
Household income limits create a similar policy choice. Tighter limits can focus support on lower-income buyers, but the thresholds will need to account for the large differences in house prices and earnings across England.
The scheme could also affect demand for new homes
Your First Home is intended to support buyers, but its effects will also be felt by housebuilders.
The government says the new-build market is under pressure from higher construction costs and wider economic conditions. Participating developers will be expected to help fund the scheme.
Evidence from Help to Buy suggests that buyer support can influence development activity. The government’s evaluation found that the earlier scheme increased developer confidence and contributed to additional housing supply after its introduction.
However, the same research raised questions about how far buyer subsidies can affect property prices and who receives the greatest benefit.
That places greater importance on the design of Your First Home. The main test will be how many households can use the scheme to buy homes they could not otherwise afford, while remaining able to manage their mortgage and equity-loan costs over the longer term.
Several details remain unknown, including the household income limits, local property price caps, equity-loan terms, total funding and implementation timetable.
The 2.5% deposit gives Your First Home a simple headline. The Budget will show how many first-time buyers are likely to benefit from it in practice.
Source:
GOV UK
