A new government scheme could allow eligible first-time buyers in England to purchase a new-build home with a deposit of just 2.5%.

Prime Minister Andy Burnham has announced plans for the new “Your First Home” scheme, aimed particularly at people who earn enough to support a mortgage but are struggling to save a large deposit while also paying rent and other living costs.

The scheme is expected to combine a 2.5% deposit with a government-backed equity loan covering 20% of the property’s value. The buyer would then need a mortgage for the remaining 77.5%.

How could the scheme work?

For somebody buying a new-build property for £200,000, the purchase could potentially be funded as follows:

• Buyer’s 2.5% deposit: £5,000

• Government equity loan of 20%: £40,000

• Mortgage for the remaining 77.5%: £155,000

Without the scheme, a buyer looking for a conventional 95% mortgage would ordinarily need a deposit of £10,000 on the same property.

Reducing that requirement to £5,000 could make a significant difference to people who can afford the monthly mortgage payments but have been unable to build a deposit.

The government loan would also reduce the size of the mortgage required. This could potentially give buyers access to more competitive mortgage rates than they would receive with a mortgage covering 95% or 97.5% of the property’s value.

Who will qualify?

The government says the scheme will be targeted at first-time buyers who cannot rely on financial help from their families.

Household income limits, savings or deposit limits and maximum property prices are expected to be introduced. This is intended to prevent the scheme being used by higher earners or people who could comfortably purchase without government support.

However, the precise eligibility rules have not yet been published.

We also do not yet know whether there will be an age restriction, how long the initial interest-free period will last or exactly how the equity loan will need to be repaid.

The full details are expected to be confirmed in the October Budget, with registration due to open before the end of 2026.

Will it be available on every property?

No. Based on the information announced so far, Your First Home will only be available on new-build properties in England sold by developers participating in the scheme.

This is an important restriction. Buyers will not be able to use the scheme to purchase an ordinary property from an existing homeowner unless the government changes the proposed rules.

It is also an England-only scheme. First-time buyers purchasing in Wales will not qualify under the plans currently announced.

Is the equity loan free money?

No. The 20% contribution will be an equity loan, not a grant, and will eventually need to be repaid.

The government has confirmed that there will be an initial interest-free period, but its length and the charges that will apply afterwards have not yet been revealed.

Under the previous Help to Buy scheme, the amount repaid was linked to the property’s value. If the home increased in value, the amount needed to repay the government’s percentage also increased. We do not yet know whether Your First Home will follow exactly the same repayment structure.

Buyers should therefore wait for the full terms before assuming that the government contribution will simply be a fixed loan of the original amount borrowed.

Could there be disadvantages?

The scheme could make homeownership possible sooner for people who would otherwise spend years saving a deposit. However, buyers will still need to consider the overall cost carefully.

New-build properties can sometimes command a premium compared with similar existing homes. Buyers should compare the asking price with both other new developments and properties available on the wider market.

Those purchasing flats should also examine service charges, ground rent arrangements, lease terms and any planned increases. A smaller deposit may help with the initial purchase, but it does not automatically mean that the property is affordable over the longer term.

There are also concerns that stimulating demand without building enough additional homes could push prices higher. The government says the scheme will support housebuilding by giving developers greater confidence, while participating developers will contribute towards its running costs.

Buyers will still need to pass mortgage affordability checks

A 2.5% deposit does not guarantee that somebody will be accepted for a mortgage.

A lender will still assess the applicant’s income, existing debts, regular expenditure, credit history and overall ability to maintain the payments. The maximum mortgage available will remain a key part of determining which properties are affordable.

Buyers will also need money for other expenses, potentially including legal fees, surveys, mortgage fees, moving costs and furnishing the property.

Our view

This could be a valuable option for people who have a reliable income and can afford a mortgage but feel trapped by the difficulty of saving a deposit while paying rent.

Reducing the mortgage requirement to around 77.5% of the property’s value could also make the financing more manageable than relying on an extremely high loan-to-value mortgage.

However, the details will matter. Buyers need to understand how the equity loan will be repaid, what happens if the property rises or falls in value and what charges could apply after the interest-free period.

It will also be important to compare a home available through the scheme with properties on the wider market. A lower deposit should not be allowed to distract from whether the price, property and overall arrangement represent good long-term value.

Anyone considering buying their first home should not automatically put their plans on hold. Existing mortgage options may already make a purchase possible, while others may benefit from waiting until the government publishes the full eligibility and repayment rules.

If you would like to understand how much you may be able to borrow, the deposit you are likely to need and whether Your First Home could eventually be suitable for you, get in touch with Chetwood Lloyd Mortgages for independent, fee-free mortgage advice.

Your home may be repossessed if you do not keep up repayments on your mortgage.