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Could you get a 1% deposit mortgage?

Writer's picture: Mortgage TreeMortgage Tree

After the previous government rumoured plans for a 1% deposit mortgage scheme which failed to materialise, one lender launched its own. Here we look at how 1% mortgages work, the pros and cons and the next best alternatives.



Accord Mortgages (Yorkshire Building Society broker only arm) has launched a 99% mortgage that enables first time buyers with a £5,000 deposit to buy a house worth up to £500,000. We explain how it works and weigh up the pros and cons.


What is a 1% deposit mortgage?

A 1% deposit mortgage means you’ll only need to put down 1% of the value of the property you’re buying as a deposit.


Accord 1% deposit mortgage – also being marketed as the “£5,000 deposit mortgage” – is a 5 year fixed-rate mortgage available at a rate of 5.74%. It does have some eligibility criteria:

  • At least one applicant must be a first time buyers

  • There is a maximum term of 40 years

  • For purchase of houses only (no flats or new builds)

  • The maximum age allowable at the end of the term is 70

  • An enhanced credit score must be achieved for applicant(s) to be eligible for the product

  • Not available on properties in Northern Ireland

And it’s important to note there is a minimum £5k deposit whether you borrow between £100k or £495,000. So it is only a 1% deposit mortgage if you take out the maximum loan size of £495,000.


Pros and cons of 1% deposit mortgages

Benefits of a 1% deposit mortgage


Avoids need for a bigger deposit

  • High house prices and saving for a deposit are the major barriers faced by first time buyers.

  • Many people are paying such high rents that while they could afford a mortgage, they don’t have enough spare money to build up a big enough deposit to buy a house.

  • David Hollingworth, associate director at L&C Mortgages says that 1% mortgages: ‘would likely open up an alternative option for first time buyers struggling to build a deposit. Requiring a smaller deposit could help accelerate the ability to buy, for those that can fund the remainder from mortgage borrowing.’


Downsides of 1% deposit mortgages?

1. Higher mortgage rates

  • The smaller your deposit, the higher the mortgage rate you’ll usually pay because the lender will see you as a greater risk than someone who, for example, can stump up a 5% deposit.

  • A higher mortgage rate means you’ll pay more per month on the amount you borrow.


2. Affordability

You’ll also need to be able to borrow a big enough mortgage based on your financial circumstances. Lenders usually offer a maximum of 4.5 times a first time buyer’s annual income.

  • To borrow £495,000 (the maximum amount offered through the Yorkshire Building Society’s 1% deposit mortgage) to buy a £500,000 house you’ll typically need a minimum joint income of £110,000.

If you want to borrow less than £495,000 you’ll need a smaller minimum income, but you’ll still need a £5,000 deposit so it won’t be a 1 per cent mortgage.

The average house price in the UK is £292,000 according to Land Registry figures. To buy a £292,000 house with this mortgage, you’ll need a £5,000 deposit and a mortgage for the remaining £287,000. To borrow this amount you’ll typically need a combined income of at least £63,700.

However, some lenders will let you borrow a greater multiple of your income. So it’s advisable to speak to Mortgage Tree for advice.


3. Risk of negative equity

You’re in negative equity when the value of your mortgage is bigger than the value of your property and the smaller your deposit, the greater the risk of negative equity if the value of your property falls. For example:

  • If you buy a property for £500,000 with a 1% deposit £495,000 mortgage and the value of your property falls to £490,000, you’ll be in negative equity.

  • But if you took out a 95% mortgage and borrowed £475,000, you won’t be in negative equity if your home’s value falls to £490,000.


And it’s not uncommon: according to MoneyHelper, it’s estimated there’s around half a million properties in negative equity in the UK.


4. What happens when your 1% deposit mortgage deal ends? 

Accord Mortgages 1% mortgage requires you to take the mortgage out for 5 years. The idea is you’ll have built up enough equity in your home over the 5 years that you can remortgage onto better deal at the end of your term. You’ll typically need at least a 5% deposit (or equity in your home) to remortgage.


Example if you borrow £250,000 on a 1% deposit mortgage over 30 years:

Assuming house values don’t fall significantly over the next 5 years you should be able to remortgage onto a 5% deposit mortgage at the end of your initial mortgage term. But this assumes these mortgage deals will be available in 5 years time.


5. You’ll still have to pay other buying costs

There are other fees you’ll need to budget for when buying a house such as conveyancing fees and the cost of a survey too. Plus you may need to pay stamp duty too.


99% mortgages and house prices

When the rumours that the previous government was planning a 1% deposit mortgage scheme were reported, many experts voiced concerns that a 1 percent deposit mortgage scheme will lead to more people buying, which would over-stimulate the market and increase demand for housing. However, the government’s plans did not materialise.


How popular are 1% deposit mortgages?

We have yet to see figures of how many people have taken up this 1% deposit mortgage. However, according to figures from Halifax, in 2023, the average deposit put down on a first home was £54,116 – around 19% of the property price. It’s clear that most first time buyers understand the benefit of a bigger deposit, allowing them to access cheaper mortgage rates which in turn make their monthly repayments more affordable. So many first time buyers may be reluctant to take out such a low deposit mortgage.

However, it’s very likely that there will be potential first time buyers who are currently locked out of being able to buy a home, who will find this scheme appealing.


Alternatives to 1% deposit mortgages

If you have a low deposit, the government has a range of other schemes to help you afford to buy your home. These include:

  • Shared Ownership. This allows you to buy a share of a property (usually 25%-75%) and pay rent on the remaining share. This makes buying more affordable. But there are pros cons to this complicated scheme, so do your research carefully.

  • The First Homes Scheme where you may be able buy a home for 30% to 50% less than its market value when you meet certain criteria (although qualifying properties are very scarce).

  • While not a government scheme, the Own New rate reducer scheme allows you to buy a new build home with a mortgage and pay a lower mortgage rate than if you buy on the open market with a traditional mortgage. The ways this works is that when you choose your property, the developer will agree to contribute up to 5% of the purchase price and this is used to give you a reduction off your monthly mortgage payments for the first 2 or 5 years.

  • Deposit Unlock is a new scheme developed by the House Builders Federation to help first time buyers and home movers buy a new build home with just a 5% deposit. Again, a 95% mortgage on the open market would be preferable to this scheme which limits you to a new build.

Bank of Mum and Dad alternatives to 1% deposit mortgages

  • Guarantor mortgages: This is when a loved one, usually a parent, takes on some of the mortgage’s risk by acting as a guarantor. This usually means them offering their savings or their home as security against the loan and committing to making the mortgage payments if the borrower defaults.

  • Family offset mortgages: These work in a similar way to guarantor mortgages that use savings as security. Although the main difference is that your loved one won’t earn interest on their savings. But on the flip side, as it’s an offset mortgage, you will only pay interest on the difference between the total value of the mortgage and the value of the savings held in the linked savings account.

  • Gifted Deposit – this is the ultimate way to boost your deposit, with a no-strings attach gift from parents or relatives to help you get on the ladder. Count your lucky stars if this is you.


Article from HomeOwners Alliance

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Mortgage Tree offers a nationwide mortgage broking service from our base near York, North Yorkshire. We specialise in mortgages and insurance. Whether you are a first time buyer or you are a buy to let investor with multiple properties, Mortgage Tree will ensure that you get the most suitable products available.

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