Mortgage guarantee scheme vs Your First Home: 5% or 2.5%?

What is the mortgage guarantee scheme?

The mortgage guarantee scheme is a government promise to mortgage lenders: if a buyer with a deposit of 5% to 9% stops paying and the home is repossessed and sold at a loss, the government covers most of the lender’s loss. It exists so that lenders keep offering 91% to 95% mortgages to first-time buyers and home movers, and it has been permanently available since July 2025, throughout the UK (GOV.UK).

You get nothing directly from the scheme. You apply to a lender for a 95% mortgage, and the lender decides whether to put your loan into it. The scheme’s job is done before you ever see a rate.

Labour’s 2024 manifesto called its planned permanent scheme Freedom to Buy. The scheme that launched in July 2025 is called the 2025 Mortgage Guarantee Scheme on GOV.UK, which describes it as “permanently available” to “eligible first-time buyers and home movers” with “a deposit as small as 5%” (GOV.UK), so that is the name to look for on lenders’ websites; some brokers and news sites still call it Freedom to Buy. The 2021 to 2025 version of the scheme supported more than 53,000 mortgages before it closed in June 2025 (HomeOwners Alliance).

How does the guarantee work?

Under the 2025 rules a lender can put a mortgage into the scheme if the loan is more than 90% and no more than 95% of the property’s value, is a repayment mortgage rather than interest-only, and is for a home at least one borrower intends to live in (GOV.UK). New and existing homes both qualify, and the rules set no maximum property price. Each lender sets its own limits.

The government then guarantees 95% of the lender’s recoverable loss for up to seven years from completion, and the lender pays the Treasury a fee for the cover (same source). Because lenders can price that fee into the mortgage, a 95% deal is not made cheap by the scheme; it is made available.

The cost to you shows up in the interest rate. On 26 September 2026 the best two-year fixed rate at 95% loan-to-value was 5.57% and the best five-year fix 5.54%. From lenders operating across England, the best two-year fix with a 10% deposit was 5.13%, and with 25% down 4.92% (HomeOwners Alliance rate table; the table’s cheaper 4.69% and 4.77% deals are from Danske Bank, which only lends in Northern Ireland). A 5% deposit costs roughly 0.4 of a percentage point a year more than a 10% one.

Mortgage guarantee scheme vs Your First Home: the table

The guarantee keeps 95% mortgages on the shelf; Your First Home replaces part of the mortgage with a government loan. Here is how they line up.

The Your First Home column comes from the government’s announcement of 26 September 2026, which sets out the 2.5% deposit, the 20% loan, new build only, England only, first-time buyers only and the two caps, all subject to the final rules at the Budget (GOV.UK). The Budget date is confirmed by HM Treasury (GOV.UK).

What do they cost on a £230,000 home?

On the £230,000 home used as the example in reports of the announcement (Rightmove’s average first-time buyer price), the 95% mortgage costs about £1,348 a month and needs £11,500 up front; Your First Home costs about £1,042 a month and needs £5,750. Both figures assume a 25-year repayment mortgage.

The 5.55% rate sits between the best two-year (5.57%) and five-year (5.54%) 95% fixes on 26 September 2026 (HomeOwners Alliance). The 5% rate is our calculator’s default for a 77.5% mortgage: the best 80% loan-to-value fixes from lenders operating across England that day were 5.00% (two-year) and 5.02% (five-year). This is the arithmetic behind the government’s claim that buyers “could save hundreds of pounds per month compared to a 95% mortgage” (GOV.UK). Put your own price and rate into the Your First Home scheme calculator, which shows the two side by side.

Now the other side of the ledger. The Your First Home buyer owes 20% of the home’s value, not a fixed £46,000. If the home is worth £253,000 after five years (a 10% rise), the loan has grown to £50,600, and £4,600 of the gain belongs to the government. Set against about £18,400 saved on payments over those five years, the scheme still comes out ahead in that scenario, before any interest on the loan begins. If the home doubled in value over 25 years the picture would change, which is why the repayment page runs the long-term scenarios.

What is the catch with each?

The 95% mortgage’s catch is price: a higher rate for as long as you have a small deposit, plus a 5% cushion against falling prices. Your First Home’s catch is the equity loan, and three things about it are still unknown.

With a 95% mortgage, a fall of more than 5% in your home’s value leaves you owing more than it is worth, known as negative equity, which can stop you remortgaging or moving. The guarantee protects the lender, not you: if you cannot pay, repossession works exactly as it does for any mortgage. You also need to borrow more, so the income a lender needs to see is higher. On our calculator’s rule of thumb of 4.5 times income, a £218,500 mortgage needs about £48,600 of household income against about £39,600 for £178,250 (methodology).

With Your First Home, first, the government has said only that there is “an initial interest free period” (GOV.UK). Help to Buy (the 2021 to 2023 version) charged nothing for five years and then 1.75% of the sum borrowed from year six, rising every April by the Consumer Prices Index plus 2% (GOV.UK). If that is copied, the £46,000 loan would cost about £67 a month in year six. Second, Help to Buy loans had to be repaid in full after 25 years, on sale, or when the mortgage was paid off (GOV.UK); we assume the same, but it has not been announced. Third, the income cap and the local price caps are unknown until 28 October 2026, so nobody yet knows whether they qualify or which homes count.

Your First Home also limits you to a new build from a developer signed up to the scheme, in England. Our buying a new build guide covers the premium new builds can carry and how to check the price you are quoted.

Which should you look at?

Look at Your First Home if you cannot reach a 5% deposit or the 95% payment would stretch you; look at a 95% mortgage if you have 5%, want an existing home, or are outside England. Run through these.

• Is your deposit under 5% of the price you need? Then Your First Home is the only one of the two that fits, once it opens.
• Is it 5% or more? Then you have a choice, and the decision is whether about £306 a month is worth 20% of future gains, an income cap, price caps and a new build.
• Do you want an older home, a flat in a converted building, or anywhere outside England? Then it is the 95% mortgage.
• Are you buying with someone, or moving rather than buying for the first time? The guarantee scheme takes movers; Your First Home does not.
• Do you need to buy soon? Nobody can use Your First Home yet, and no launch date has been given. A 95% mortgage is available today.

What to do next

• Put your target price into the Your First Home scheme calculator to see the two monthly figures side by side with your own rate assumptions.
• Check how far you are from 2.5% and 5% with the deposit calculator. If you are under 40, the Lifetime ISA adds 25% to what you save towards either route.
• Read the new build mortgages guide if you are leaning towards Your First Home, and the first-time buyer costs guide either way.
• Come back on 28 October 2026. The Budget sets the income cap, the price caps and the interest terms, and this page changes that day.