What Does the 2.5% Deposit “Your First Home” Scheme Actually Mean?

Your First Home is a new government scheme letting eligible first-time buyers in England buy a new-build home from a participating developer with a 2.5% deposit, backed by a 20% government equity loan that is interest-free to begin with. Income and price caps apply, and the full rules are due at the October Budget.

The deposit just got smaller. The rest of the price still has to come from somewhere.

Someone’s lowered the bottom stair. The rest of the staircase is still there.

What has actually been announced?

• A 2.5% deposit, on new-build homes in England, from developers that sign up to the scheme
• A government equity loan worth 20% of the property’s value, interest-free to begin with
• Caps on household income, and local caps on property prices
• Developers contribute to the scheme’s costs
• Full detail due at the October Budget

That’s the lot. Notice what’s missing: how long the interest-free bit lasts, and what happens when it stops.

If your savings are the only thing standing between you and a mortgage, that’s a real change. If they aren’t, it changes less than it looks.

What does a 2.5% deposit mean for how much you borrow?

Take a £250,000 new-build. You put down £6,250. The government lends you £50,000. A mortgage covers the other £193,750.

Your lender sees a 77.5% mortgage. You owe 97.5% of the price.

(And the mortgage part still depends on a lender’s own affordability checks – your income, your outgoings, your credit history. Nothing announced so far changes that.)

Is it better or worse than Help to Buy?

Too early to call. The interest-free start is a real plus: while it lasts, that 20% slice isn’t building up interest. The open question is whether it avoids the concern raised across the industry about Help to Buy – that buying a new-build through the scheme could end up costing buyers more.

Both can be true. Which one wins depends on rules nobody’s published.

What should you watch for at the Budget?

Four things decide whether this is a good deal:

• How long “interest-free to begin with” lasts. The longer it runs, the longer that 20% slice adds no interest. The shorter it is, the sooner the cost question starts.
• What the loan costs after that. This decides what the 20% slice adds to what you pay over time once the interest-free period ends.
• How and when it gets repaid. This shapes your plans for the years after you buy, so it’s worth knowing before you commit.
• Where the income and price caps land. These decide whether you qualify at all, and which homes are within range.

None of them have been published. They’re due at the Budget

In the meantime, fancy a chat about it?