Mortgage Guarantee Scheme Calculator — Freedom to Buy 5% Deposit

Freedom to Buy is the successor to the Mortgage Guarantee Scheme (MGS). It allows borrowers to purchase a property worth up to £600,000 with just a 5% deposit, with the government guaranteeing the mortgage portion above 80% LTV. This enables first-time buyers and home movers to buy with a smaller deposit than standard lenders require.

The scheme is available to: first-time buyers and home movers, for properties up to £600,000, with a deposit of 5-9% (91-95% LTV), on a repayment basis only. Buy-to-let and second home purchases are excluded. The property must be the buyer's main residence.

No. Unlike some other government schemes, the Mortgage Guarantee Scheme and Freedom to Buy are available to home movers as well as first-time buyers. You do not need to be buying your first home to use the scheme.

Yes. Mortgage interest rates at 95% LTV are typically 0.5-1.5% higher than at 75-85% LTV, because the lender takes on more risk. The government guarantee partially mitigates lender risk, but lenders still price these loans at higher rates. As you build equity, you can remortgage to a lower LTV and better rate.

The government guarantees the portion of the mortgage between 80% and 95% LTV. If you default and the lender repossesses and sells the property at a loss, the government covers some of the lender's shortfall on the guaranteed portion. This reduces the lender's risk, enabling them to offer 95% LTV mortgages they otherwise wouldn't.

The government guarantee is between the lender and the government — it doesn't directly reduce your mortgage rate. You pay the market rate for high LTV mortgages. However, the scheme enables more lenders to offer 95% LTV products, which increases competition and keeps rates more competitive than they'd otherwise be.

The maximum property value is £600,000 for both the Mortgage Guarantee Scheme and Freedom to Buy. There is no minimum property value. The property must be residential (not a commercial property) and must be your primary residence.

Freedom to Buy/MGS cannot be combined with Help to Buy equity loans (which have now ended for new applications) or shared ownership. It's a standalone scheme. For shared ownership properties, the scheme doesn't apply as you're only buying a share of the property.

As you make mortgage payments and if property values rise, your LTV naturally decreases. Once you reach 85% LTV (or lower), you can remortgage to standard residential rates, which are typically lower than 95% LTV rates. This is a common strategy: use the scheme to get on the ladder, then reduce the rate as equity builds.

New-build properties are eligible for Freedom to Buy. There is no new-build exclusion in the scheme rules. However, some individual lenders participating in the scheme may set their own restrictions on new-build properties (particularly high-rise flats). Check with specific lenders.

The original Mortgage Guarantee Scheme was announced in the 2021 Budget and has been extended several times. Freedom to Buy is the ongoing replacement. Check the government website or speak to a mortgage broker for the most current participating lenders and availability.

With only 5% equity, even a small fall in property values could put you in negative equity (owing more than the home is worth). House prices in some areas have fallen 5-10% over short periods. If you need to sell in a falling market, you could face a shortfall. A small deposit increases this risk compared to a larger deposit.