First-time buyer mortgages: what is different

A first-time buyer mortgage is not a different kind of mortgage. It is an ordinary mortgage that a lender is willing to give someone who has never owned a home, usually on a smaller deposit than it would accept from a home mover. The most a lender will typically go to is 95% of the property price, which means a 5% deposit: on a £200,000 home that is £10,000 down and a £190,000 mortgage. Independent guidance puts the minimum deposit for most first-time buyer mortgages at 5% of the purchase price¹.

What makes first-time buyers different is the support around the deposit. A Lifetime ISA adds a 25% government bonus to what you save, up to £1,000 a year, and can be used towards a first home costing £450,000 or less². There is also a new scheme for England, Your First Home, announced on 26 September 2026, which pairs a 2.5% deposit with a 20% government-backed equity loan on new-build homes⁴.

The rules matter as much as the rates. A Lifetime ISA has to be open for at least 12 months before the money can be used, the property has to come in at or under £450,000, and taking money out for anything else before 60 triggers a 25% charge².

Mortgages up to 95% of the price: buying with a 5% deposit

A 95% mortgage means the lender advances 95% of the property's value and you find the other 5%. Independent guidance describes this as the standard route onto the property ladder, with a deposit of 5% of the purchase price and a mortgage covering the rest¹. Lenders market these deals directly at first-time buyers: first direct says it offers 5% deposit mortgages for first time buyers, and Nationwide says it can offer 95% mortgages for first time buyers with a 5% deposit⁵.

The trade-off is that a small deposit leaves very little equity at the start. Independent guidance is blunt about it: pay a 5% deposit and your equity, to begin with, will be 5%⁷. That matters if prices fall, because a borrower with 5% equity can slip into negative equity far sooner than one who put down 20%. It also matters at the end of a fixed deal, when the loan-to-value band you sit in decides which rates are open to you. Our page on loan to value explains how those bands work.

Credit history is the other gate. Independent guidance notes that a first-time buyer with a small deposit looking to get a 95% mortgage may struggle to borrow at such a high loan-to-value with a series of missed payments⁸. The higher the loan-to-value, the more a lender leans on the credit file, because its cushion is thinner. If there are defaults or late payments in the picture, our guide to getting a mortgage with bad credit sets out the options.

Lifetime ISA: a 25% bonus of up to £1,000 a year towards your first home

A Lifetime ISA is a savings or investment account with a government top-up built in. You must be 18 or over but under 40 to open one, and resident in the UK¹¹. You can put in up to £4,000 per tax year, and the government adds 25% on top, up to a maximum bonus of £1,000 a year³. Independent guidance describes the same terms: a 25% top-up from the government, up to £1,000 a year, for first-time buyers saving into a Lifetime ISA¹².

The bonus is paid on contributions, so the amount you receive tracks what you pay in. Save £4,000 in a tax year and the bonus is £1,000; save £1,000 and it is £250. You can carry on paying in until you turn 50³. The money can be held as cash or invested, and providers offer both. AJ Bell, for example, describes a 25% bonus every year, up to £1,000, on its ISA¹³.

There is a separate, older product: the Help to Buy ISA. It paid a 25% government bonus on savings when you bought your first home, capped at £3,000, and the property had to cost £250,000 or less, or £450,000 in London¹⁴. Help to Buy ISAs are no longer open to new savers, but if you hold one you can transfer the money into a Lifetime ISA².

The two bonuses cannot be combined on one purchase. Official guidance states that if you hold both a Help to Buy ISA and a Lifetime ISA, you can only use the government bonus from one of them to buy your first home². A building society's guidance says the same thing in the same terms¹⁶.

Using a Lifetime ISA to buy: the £450,000 limit and 12-month rule

Two conditions decide whether a Lifetime ISA can be used for a purchase. The first is price: the property must cost £450,000 or less². National Savings and Investments states the same cap, and the money can only be used to purchase a house up to £450,000³. Independent guidance repeats the £450,000 maximum house purchase price¹. The cap applies to the purchase price, not to the size of the mortgage, and it applies wherever in the UK the home is.

The second condition is time. You must buy the property at least 12 months after you make your first payment into the Lifetime ISA². National Savings and Investments puts it as the account needing to be open for at least a year before you can withdraw money to buy your first home³. Open the account and buy within the same year, and the withdrawal does not qualify.

Beyond those two, the standard first-home conditions apply. You must be buying your first home, you must intend to live in it, and you must use a mortgage, not a private loan from a relative². If you are buying with someone else who also has a Lifetime ISA, official guidance confirms you can both use your savings and government bonus, provided you are both first-time buyers and both meet the conditions². A building society's guidance says the same: if both buyers are first time buyers, you can both use your Lifetime ISA for the purchase without paying a withdrawal charge¹⁷.

Where the 25% Lifetime ISA withdrawal charge applies

Take money out of a Lifetime ISA for anything other than a first home or retirement and the government takes back more than it gave. The charge is 25% of the amount you withdraw³. Withdrawals that are made not for a first home or retirement incur a withdrawal charge of 25%¹⁵. Independent guidance describes the same penalty for withdrawing for something other than retirement or buying a first home¹⁸.

The charge is designed to claw back the bonus and a little more. Because 25% is taken from the total balance rather than from the bonus alone, a saver who withdraws early can end up with less than they paid in. National Savings and Investments warns that you would be charged 25% of the amount you withdraw, so you could get back less than you put in³. Providers describe the same figure: Hargreaves Lansdown notes that using the Lifetime ISA to buy a home in the first year means paying the 25% government withdrawal charge, and Interactive Investor states the charge is currently 25% of the amount you want to withdraw¹⁹.

The charge also bites in one situation buyers do not expect. If a purchase falls through after the money has been released, and the money is not returned, Skipton Building Society says the government withdrawal charge of 25% of the amount withdrawn will apply unless an extension has been agreed²¹. In other words, a collapsed sale can cost you the bonus if the funds are not put back.

Your First Home: the new equity loan scheme announced for England

On 26 September 2026 the government announced a new equity loan scheme for first-time buyers in England, called Your First Home⁴. The scheme is for first-time buyers in England buying a new-build property from a participating developer²². It pairs a 2.5% deposit with a 20% government-backed equity loan, leaving a 77.5% mortgage²².

The scheme is not yet open, and the detail is not yet fixed. The government says further details, including costs and implementation timelines, will be announced by the Chancellor at the Budget next month⁴. Reporting on the announcement says the scheme will be confirmed at the Budget and open for registration by the end of 2026²². Until those details are published, no one can say what the loan will cost, how it will be repaid, or which developers will take part.

It is worth separating Your First Home from the schemes that already exist, because they work differently and cover different parts of the UK.

In Scotland the support runs through the First Homes Fund rather than an equity loan. It offers up to £10,000 to first-time buyers, and the Scottish Government says it cannot be used together with other schemes that help you buy a home, though a Help to Buy ISA or Lifetime ISA can be used for the deposit²⁴. Applicants must be taking out a capital repayment mortgage of at least 25% of the buying price, or the valuation if lower²⁷. The Scottish Government directs buyers to its First Homes Fund guidance for eligibility and step-by-step application instructions²⁸. The earlier First Homes scheme in England was expected to deliver 1,500 First Homes across the country by November 2023²⁹.

What protects a first-time buyer

The protections that apply to any mortgage apply here. A lender must assess whether the loan is affordable, and the paperwork you receive before you commit, the ESIS illustration, sets out the rate, the fees and the total cost. Our guide to mortgage rules, your rights and protection covers what a lender must tell you and when.

On the Lifetime ISA side, the protection is the rule itself: the 25% charge is what stops the bonus being used for anything other than a home or retirement, and it is applied by the provider when you withdraw. If a purchase falls through, the money can be returned to the account without the charge, but only if it is returned; Skipton Building Society's guidance notes the charge applies if the money is not returned unless an extension has been agreed²¹.

If something goes wrong with a mortgage or a Lifetime ISA, a complaint goes first to the firm and then, if unresolved, to the Financial Ombudsman Service. Our page on complaining to the Financial Ombudsman about your mortgage explains the process and the time limits. Free, impartial help on buying a home is available from Citizens Advice, which covers the buying process and where to get support³⁰.

Two further points are worth knowing. If you have a Help to Buy ISA or a Lifetime ISA, you can use it to pay a deposit for a home through Right to Shared Ownership or Rent to Buy³¹. And the government has said that a new first-time buyer ISA will be offered in place of the Lifetime ISA once available, which means the rules described here may change for savers opening accounts after that point³².