The acceptance of mortgage applications for the government-backed 95% mortgage guarantee scheme closed at the end of June 2025. In its place, the government has launched a new, permanent mortgage guarantee scheme. This is called Freedom to Buy and it enables buyers to secure a mortgage with just a 5% deposit.
What is Freedom to Buy?
One of the biggest factors preventing aspiring homeowners from getting on the property ladder is the inability to save a big enough deposit. Many have no choice but to continue living at home with family members or are trapped in a perpetual rental cycle. Likewise, current homeowners are unable to move on, having to stay in a home that no longer suits their needs.
Available from July 2025, Freedom to Buy is a government-backed scheme that offers a low-deposit mortgage solution. It aims to help first-time buyers and home movers buy a home with a smaller deposit of 5%.
How does the Freedom to Buy scheme work?
Usually, a mortgage application with a low deposit presents more of a risk to lenders. The lower the loan-to-value (LTV) ratio, which is how much they’re lending in relation to the property value, the happier they are. A 5% deposit, however, means a high LTV of 95% is needed.
Under this scheme, the government pledges to insure lenders against potential losses on 91–95% LTV mortgages. This reduces the risk for lenders, encouraging them to offer high LTV mortgages for residential properties. This, in turn, widens the availability of low-deposit mortgages for borrowers who are struggling to save a larger deposit. Lenders must pay a commercial fee to participate and the government has set a liability cap of £3.2 billion.
If you wish to take advantage of the scheme, you need to take out a repayment mortgage. Interest-only mortgages aren’t accepted via Freedom to Buy. The property you’re buying must be located in the UK and must be used as your home. All mortgages approved under this scheme are regulated. As such, you can’t apply for a mortgage to fund the purchase of a buy-to-let property. You need to pass the lender’s affordability checks as you would with any other mortgage application.
Certain restrictions apply to this mortgage scheme. For example, you can’t apply for a guarantor mortgage or an offset mortgage and you can’t use the scheme in conjunction with shared ownership.
Is this new scheme needed?
The previous 95% mortgage guarantee scheme highlighted the need for this type of initiative. Throughout its duration, over 53,000 mortgages were completed. As a result, the government acknowledged the need to continue offering a low-deposit mortgage solution for prospective buyers.
Currently, however, many 95% mortgages are offered by lenders outside of the original scheme. Therefore, Freedom to Buy may not have quite the impact on borrowers that the government hopes. However, it may encourage some lenders who don’t offer 95% mortgages to join the scheme due to the government-backed guarantee.
Considerations
A concern with low-deposit mortgages is the risk of negative equity. As well as that, mortgage interest rates tend to be higher, making the monthly mortgage payments higher and the overall mortgage loan more expensive. Whilst a 95% mortgage can be a much-needed lifeline for some, it comes with these additional risks.
Take advantage of a low-deposit mortgage scheme
If you’re struggling to save a big deposit and can benefit from a low-deposit mortgage solution, give us a call on 01322 907 000. Our mortgage brokers can explain the Freedom to Buy scheme in more detail with you as well as the alternatives available. Having discussed your circumstances, they can compare different options and provide you with impartial advice on each. That way, you can make the best decision for your needs.