UK’s New 2.5% Deposit Scheme Could Change Who Can Buy a Home

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Buried inside this month’s Autumn Budget is a scheme that could matter more to first-time buyers than any single tax line. It’s a government-backed mortgage that needs only a 2.5% deposit. The first-time buyer mortgage scheme, branded “Your First Home,” pairs that small deposit with a 20% government equity loan. The goal is simple: get more renters onto the property ladder without the 10-15% deposits most lenders currently expect.

Chancellor John Healey announced the scheme on October 28, as part of the Autumn Budget. He paired it with a separate decision to scrap a planned cut to the cash ISA allowance. That combination suggests the government is betting on housing and saving incentives together, rather than tax cuts, to tackle affordability.

How the first-time buyer mortgage scheme actually works

Buyers put down a 2.5% deposit. The government adds a 20% equity loan on top. The buyer then takes out a mortgage for the remaining 77.5% of the property’s value. That structure shrinks the deposit hurdle that has kept many renters out of the market. It doesn’t require buyers to borrow more relative to their income than a conventional mortgage would.

Caps on price and income decide who qualifies

Regional price limits apply: £650,000 for properties in inner London, £500,000 everywhere else the scheme covers. Household income faces a cap too, at £110,000 generally and £140,000 for buyers in London. Those higher London figures reflect the capital’s steeper property prices and wages. Anyone above those thresholds, or buying above the price cap, won’t qualify under the scheme as designed.

The timeline buyers need to plan around

Pre-registration opens at the end of December 2026. Full applications follow from February 2027. The first loans are expected to go out in April 2027. That staggered rollout gives mortgage lenders and conveyancers several months to build the scheme into their processes. It also means anyone hoping to use it this winter will need to wait.

What changes for existing savings products

The budget replaces the Lifetime ISA with a new First Time Buyer ISA, starting in April 2029. That’s a later date than the mortgage scheme itself, so the two won’t launch together. The new ISA offers £4,000 in annual contributions with a 25% government bonus, up to a £450,000 property price cap. One change moves faster: the penalty for withdrawing Lifetime ISA savings to buy a property above £450,000 already dropped, from 25% to 20%. That took effect at midnight on October 29, well before the main scheme arrives.

What to watch before the scheme opens

The real test for “Your First Home” comes once pre-registration opens in December. Lenders will start publishing mortgage products built around the 2.5%-deposit structure around that time. Housing analysts note that government-backed equity loan schemes have had mixed records in the UK before. Much depends on how many lenders choose to participate, and how quickly. Until lenders confirm their offerings, the scheme’s real-world impact on affordability stays an open question rather than a settled fact.

For the fuller picture of this month’s budget, see Tamara News’ coverage of the UK’s recent immigration rule changes and the opening of Lifelong Learning Entitlement applications.

FAQ: the first-time buyer mortgage scheme

How much deposit does the new scheme require?

2.5% of the property’s value, paired with a 20% government-backed equity loan. A mortgage covers the remaining 77.5%.

What are the price caps?

£650,000 for properties in inner London, £500,000 for properties outside inner London, under the scheme as announced.

Is there an income limit?

Yes: £110,000 generally, rising to £140,000 for buyers purchasing in London.

When can buyers start applying?

Pre-registration opens at the end of December 2026. Full applications start in February 2027. First loans are expected in April 2027.

Is the Lifetime ISA being scrapped immediately?

No. It continues until the new First Time Buyer ISA launches in April 2029. The withdrawal penalty for buying above £450,000 dropped from 25% to 20% starting October 29, 2026.

Who announced the scheme?

Chancellor John Healey, as part of the October 28, 2026 Autumn Budget.

Sources

• Which? — Autumn Budget 2026: what changes did John Healey announce? which.co.uk
• House of Commons Library — Autumn Budget 2026: a summary. commonslibrary.parliament.uk

Image credits: featured photo by Steve Daniels, Geograph Britain and Ireland (CC BY-SA 2.0). In-content photo by “I See Modern Britain”, Wikimedia Commons (CC BY 2.0).