Your First Home Scheme: 2.5% Deposits, Eligibility and Costs

A 2.5% deposit could make buying a first home possible sooner, but the proposed Your First Home scheme comes with a second bill to plan for: interest on a 20% equity loan after five years. For eligible buyers in England, the offer may improve access to a mortgage. The new-build restriction, local price caps and unanswered questions about repaying the loan deserve equal attention.

How the scheme is expected to work

Buyers with a deposit between 2.5% and 15% would receive an additional loan worth 20% of the home's value. That loan would carry no interest for the first five years. From year six, the stated rate is 1.5%; from year seven onward, it is 3%.

The details released so far don't explain how interest will be collected, how buyers can repay the loan before selling, or what happens if payments are missed. Those points matter: the interest-free period gives buyers time, but it doesn't make the loan a grant. Anyone weighing the scheme will need to understand how the loan affects monthly costs and the proceeds when a home is sold.

The scheme is for first-time buyers purchasing new-build homes in England from developers signed up to participate. Pre-registration is scheduled to open by the end of December 2026, full applications from February 2027, and the first loans from April 2027.

Who may qualify, and where

Applicants must be first-time buyers, buy in England, and choose a participating developer's new-build. Household earnings must be no more than £110,000 outside London or £140,000 in London. The home must also cost no more than the median property price for its local area. A full list of local limits has not yet been published.

Examples provided so far include Reading at £375,000, North Devon at £320,000, Manchester at £355,000 and Middlesbrough at £220,000. The examples for London are £650,000 in Inner London and £500,000 in Outer London. These figures show why checking the eventual local limit will be an early step for anyone considering the scheme.

Compare the other routes to buying

The new offer would sit alongside savings products, part-buying arrangements and mortgage support. Some existing options may be used together, depending on their terms and the buyer's circumstances. Compare the full costs, eligibility rules and restrictions before settling on a route.

Lifetime ISA

A Lifetime ISA can help build a deposit for a first home. Savers aged 18 to 39 can open one and contribute up to £4,000 a year per person. The account adds a 25% bonus, worth up to £1,000 a year, and interest is tax-free. The funds can be used for a first home or withdrawn after age 60.

To receive the bonus for a home purchase, the property must cost £450,000 or less. Buying above that limit means the bonus isn't paid; a 20% withdrawal penalty applies instead. The source says Lifetime ISAs are set to be replaced in April 2029, while remaining available to open at present. See the guide to Lifetime ISAs and the current list of Lifetime ISA rates for more detail.

Shared ownership

With shared ownership, a buyer purchases between 25% and 75% of a home and pays rent to a housing association on the remaining share. The buyer needs a mortgage and deposit for the part they purchase, while rent is an ongoing cost for the part they don't own. Buyers may be able to increase their share over time.

Typical eligibility includes being at least 18, household income below £80,000—or £90,000 in London—and being unable to afford a suitable home outright. The deposit is generally 5% to 10% of the buyer's share of the full property value. A good credit rating and no outstanding debt are also listed as requirements. Check eligibility and local homes through the Shared Ownership eligibility information.

Mortgage Guarantee Scheme

This scheme is designed to help buyers with deposits of 5% to 9% purchase a home. A guarantee covering part of the mortgage is intended to encourage participating lenders to offer low-deposit mortgages. The home must cost no more than £600,000, be the buyer's main residence, and meet the lender's affordability checks. Since not every lender participates, buyers need to check whether their chosen provider is included.

A mortgage affordability calculator can help estimate borrowing and monthly repayments. It's a starting point; lender assessments determine what a buyer can borrow.

Options vary across the UK

First Homes in England

First Homes offers a discount of 30% to 50% off market value. The discount also applies when the home is resold, helping maintain affordability for later buyers. The scheme covers some new homes and resales that were originally purchased through First Homes.

Buyers must be first-time purchasers, at least 18, earn no more than £80,000 a year—or £90,000 in London—and have a mortgage for at least 50% of the discounted price. The maximum price after the discount is £250,000, or £420,000 in London. Local eligibility rules can lower the price cap or give priority to key workers and lower-income buyers. These local rules apply only during the first three months a property is on sale, and demand may be high. Members of the armed forces, and certain former or surviving spouses, are exempt from the local or key-worker requirement.

LIFT in Scotland

Scotland's Low-cost Initiative for First-Time Buyers has two routes. Open Market Shared Equity is generally for homes sold on the open market; New Supply Shared Equity is for new-builds from councils and housing associations, aimed at people on low or medium incomes.

With the new-build option, buyers typically purchase 60% to 80% of the home. Under the open-market route, the share is 60% to 90%. The remaining share is held through an equity agreement, with no rent or interest charged on it; when the home is sold, the other party receives its percentage of the sale value. Buyers may increase their share by at least 5% each year. Applicants need to show they can't buy a suitable new-build without help and pass an income assessment. Assessment rules vary locally, with no single income floor or ceiling. Details are available from the Scottish scheme information.

Help to Buy in Wales

For a new-build in Wales, buyers put down a 5% deposit and may receive an equity loan of up to 20% of the property's value, covering the rest with a mortgage. The home generally must cost £300,000 or less and be the buyer's main residence.

Co-ownership in Northern Ireland

Eligible first-time buyers can purchase between 50% and 90% of a home and rent the remainder. Typical requirements include living in Northern Ireland, not owning a home, and supplying three months of bank statements without unauthorised overdrafts, returned Direct Debits or charges for unauthorised use. Applicants generally need six months of employment, or self-employed income records covering two years.

What to weigh before applying

The main attraction is clear: a 20% loan with no interest for five years could lower the mortgage needed and may help a buyer qualify for a cheaper mortgage rate. A deposit as low as 2.5% could also bring forward a purchase for someone who can meet the other costs.

But the choice of homes is limited to new-builds from participating developers, and new-builds can cost more than older homes. The loan represents 20% of the home's value, and the available information doesn't yet explain how buyers can clear it before moving. If it's still outstanding when the home is sold, the source warns that buyers could lose 20% of the sale price. Interest charges also begin after five years, with collection and missed-payment terms still unclear.

Before making a decision, compare a mortgage with and without the scheme, check the local price ceiling, and ask how the loan would be repaid or treated on sale. The published rates and launch timetable offer a useful outline, but the remaining loan terms will determine how practical the scheme is for a particular purchase.

For a broader comparison, see current mortgage rates and deals. You can also read about steps before applying for a mortgage, mortgage types and mortgage overpayments.