Your First Home scheme: 2.5% deposits, loan costs and buyer trade-offs

A 2.5% deposit could bring a new-build home within reach sooner for some first-time buyers in England. The proposed Your First Home scheme would add a 20% equity loan, interest-free for five years, to buyers’ savings and mortgage. The lower upfront hurdle is the headline. The bigger decision is whether the loan’s later charges, home price limits and resale terms suit the buyer’s plans.

The scheme was announced in outline ahead of the Autumn Budget 2026. Pre-registration is expected by the end of December 2026, applications from February 2027 and the first loans from April 2027. Those dates give prospective buyers time to compare the proposal with existing routes, but some important details remain unsettled, including how charges will be collected and how buyers can repay the loan before selling.

How the 20% loan would work

Eligible buyers would need a deposit of between 2.5% and 15% of the property’s value. The scheme would provide a further 20% as an equity loan, leaving the buyer to cover the balance with a mortgage. The loan would carry no interest in years one to five. The published rates then rise to 1.5% in year six and 3% from year seven.

The exact collection method for those charges has not been explained. Nor does the source provide the consequences of missing a payment. Buyers should treat the five-year interest-free period as temporary relief, not as the full cost of the borrowing. Before committing, they’ll need clear terms for the later charges and a way to understand what happens to the loan if they move.

The home must be a new-build in England, bought from a developer signed up to the scheme. That narrows the choice to participating developments. New-build homes can also cost more than older properties, so a smaller deposit does not automatically make the overall purchase cheaper.

Who can apply, and what homes qualify?

Applicants must be first-time buyers purchasing in England. Household income must be no more than £110,000 outside London or £140,000 in London. The property’s price must not exceed the median price for its local area.

The published examples show how much the local cap can vary: £220,000 in Middlesbrough, £320,000 in North Devon, £355,000 in Manchester and £375,000 in Reading. Inner London’s example is £650,000, compared with £500,000 for Outer London. These are examples, not a complete list of area limits.

That local ceiling could rule out a home even when a buyer meets the income test and has the required deposit. Buyers will need to check the cap that applies where they want to live, as well as whether a suitable developer has joined the scheme. The [scheme announcement](https://www.gov.uk/government/news/new-first-time-buyer-scheme-to-be-confirmed-at-budget) and the [Autumn Budget 2026 overview](https://becleverwithyourcash.com/autumn-budget-2026-what-you-need-to-know/) are linked in the original coverage.

Other routes to compare

Your First Home would sit alongside savings products, shared-purchase arrangements and low-deposit mortgage support. Some options may be combined, though buyers should check the rules of each scheme before relying on that.

Lifetime ISA

A Lifetime ISA (LISA) can add a 25% bonus to eligible savings used for a first home purchase or withdrawn after age 60. The bonus can add up to £1,000 a year. Each person can contribute up to £4,000 annually, and accounts can be opened by people aged 18 to 39. Savings interest is tax-free.

The home must cost £450,000 or less to qualify for the bonus. If the purchase price is higher, the bonus is lost and a 20% withdrawal penalty applies instead. The source says LISAs are due to be replaced in April 2029, while remaining available to open and use for now. Buyers can read more in this [Lifetime ISA guide](https://becleverwithyourcash.com/understanding-lifetime-isas/) and compare accounts in the [Lifetime ISA roundup](https://becleverwithyourcash.com/best-lifetime-isas/).

Shared ownership and mortgage guarantees

Shared ownership lets buyers purchase 25% to 75% of a home and rent the remaining share from a housing association. The buyer needs a mortgage and deposit for the part they own, then pays rent on the rest. They may be able to buy additional shares over time.

Typical eligibility conditions include being at least 18, household income below £80,000 outside London or £90,000 in London, showing that buying outright is unaffordable, and having a deposit of 5% to 10% of the share’s full value. Buyers are also expected to have a good credit rating and no outstanding debt. The [eligibility guide](https://www.gov.uk/shared-ownership-scheme/who-can-apply) explains who may qualify.

The Mortgage Guarantee Scheme is designed to support mortgages for buyers with a 5% deposit. The source says buyers need a deposit of 5% to 9%, a home priced at £600,000 or less, and the property must be their main home. They must pass the lender’s affordability checks, and their lender must take part. A [mortgage calculator](https://becleverwithyourcash.com/mortgage-affordability-calculator/) can help buyers estimate borrowing and monthly repayments, although a lender’s assessment will determine what it offers.

Options in England, Scotland, Wales and Northern Ireland

In England, First Homes offers a 30% to 50% discount on the market value. The discount carries over when the property is sold, helping keep it affordable for the next eligible buyer. The scheme covers new homes and some resales previously purchased through First Homes.

Buyers generally must be first-time buyers aged over 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 price cap is £250,000 after the discount, rising to £420,000 in London. Local authorities may set tighter rules, such as lower caps or priority for key workers and lower-income applicants. Those local criteria apply for the first three months a property is on sale, and the source notes that demand can be high during that period.

Scotland’s Low-cost Initiative for First-Time Buyers has two routes. Open Market Shared Equity applies to homes bought on the market; New Supply Shared Equity covers new-build homes from councils and housing associations for people on low or medium incomes. Buyers typically purchase 60% to 80% through the new supply route, or 60% to 90% through the open-market route. There is no rent or interest on the remaining share, but that share of the home’s value is returned when the property is sold. Owners may increase their share by at least 5% a year. Eligibility depends on showing that suitable housing is unaffordable without support and passing a local income assessment. Details are available through the [Scottish scheme information](https://www.mygov.scot/new-supply-shared-equity-scheme/how-to-apply).

In Wales, Help to Buy applies to new-build homes priced at £300,000 or less. Buyers put down 5%, with an equity loan of up to 20% and a mortgage for the rest; the home must generally be their main residence.

Northern Ireland’s Co-ownership scheme lets eligible first-time buyers buy 50% to 90% of a home and rent what remains. Typical conditions include living in Northern Ireland and not owning a home. Applicants need three months of bank statements without unauthorised overdrafts, returned Direct Debits or unauthorised-use charges. Employees generally need at least six months in work; self-employed applicants need proof of income for two years.

Weigh the smaller deposit against future costs

Your First Home could help buyers purchase sooner or qualify for a mortgage rate they might not otherwise get. An interest-free loan for five years may also reduce costs during that period. But those advantages depend on the buyer finding a suitable participating new-build within the local price cap and being able to manage the later charges.

The open questions matter. The source says 20% of the home would be owned through the scheme, but the process for clearing that share before a sale is not yet clear. If the buyer sells without first resolving the loan, the scheme could claim 20% of the sale price. Charges also rise after year five, while the method of collection and missed-payment consequences have not been set out.

Compare the full purchase and borrowing costs, not only the deposit. Check whether a LISA or a regional scheme fits, and ask for the Your First Home loan terms in writing once they’re available. The scheme may widen access, but buyers should understand what they owe after the introductory period and what happens if their plans change. The source also links to general reading on [preparing for a mortgage](https://becleverwithyourcash.com/first-time-buyers-what-to-do-before-applying-for-a-mortgage/), [mortgage types](https://becleverwithyourcash.com/a-guide-to-different-types-of-mortgages/) and [mortgage overpayments](https://becleverwithyourcash.com/should-i-overpay-my-mortgage/).