Getting on the property ladder in London could soon require a far smaller deposit, under a new Budget scheme that lets first-time buyers put down as little as 2.5 per cent of the purchase price.
Chancellor John Healey has unveiled the Your First Home scheme, a £4.7 billion programme designed to help around 70,000 households across England buy their first home. The centrepiece is a 20 per cent equity loan, which would sit alongside a buyer’s mortgage and deposit to bridge the gap between what they have saved and what a home costs.
Under the scheme, deposits would start at 2.5 per cent and rise to a maximum of 15 per cent, with the equity loans interest-free for the first five years. For households in London, the income cap is set at £140,000.
Price caps will be tied to median prices in each local authority area. In the capital, that means a limit of £650,000 in inner London and £500,000 in outer London — a distinction that will matter enormously, given how sharply prices vary from borough to borough.
The timetable is tight. Pre-registration is due to open by the end of December 2026, with full applications from February 2027 and the first loans expected to be issued from April 2027.
What 2.5 per cent means in practice
To see what the headline figure means in cash terms, take the current average asking price for a first-time buyer home, put at £225,627 in October 2026 by property website Rightmove — a figure that covers properties with two bedrooms or fewer and is down 0.5 per cent on a year earlier.
On that price, a 2.5 per cent deposit works out at roughly £5,640, while a 20 per cent equity loan would cover around £45,125, leaving the buyer to mortgage the rest. That is an illustration based on the scheme’s published terms and the Rightmove average, not a quote or a promise for any individual purchase — the amount each buyer can borrow will still depend on their income, credit history and the lender’s own checks.
Those checks will take place against a difficult backdrop for borrowers. Mortgage rates have remained just below six per cent for two- and five-year fixed deals, according to Moneyfacts, and have edged higher in recent months as volatility in swap markets — the rates lenders use to price fixed deals — feeds through. A smaller deposit helps at the point of purchase, but monthly repayments will still be set by the mortgage market.
London’s affordability gap
The scheme lands in a city where the deposit barrier has long been the hardest part of buying. London house prices have eased recently, according to Zoopla data, but the capital remains far more expensive than the rest of the country, and the gap between boroughs is stark: Kensington and Chelsea ranks as the least affordable place to live, while Bexley has been named the cheapest borough for homebuyers.
That spread is why the inner and outer London caps matter. A £650,000 ceiling in inner London will cover many flats and smaller homes, but buyers chasing family-sized properties in the most expensive postcodes will still find themselves above the limit — and the scheme’s rules for what happens then will be watched closely once the full guidance is published.
Lifetime Isa changes take effect today
Alongside the new scheme, the Government has changed the rules for the existing Lifetime Isa, and that change takes effect from today, 29 October. First-time buyers can already save up to £4,000 a year into a Lifetime Isa, receiving a 25 per cent government bonus worth up to £1,000 a year.
Until now, savers who withdrew the money for anything other than a first home or retirement faced a 25 per cent charge. HM Revenue and Customs recorded nearly £119 million in such charges in 2025-26, with the average unauthorised withdrawal totalling around £3,088.
From today, savers who buy a home above the Lifetime Isa price cap — but who otherwise meet the qualifying rules — can withdraw their funds with a reduced charge of 20 per cent. That recovers the government bonus while letting savers keep their own contributions, removing a penalty that had caught out buyers whose purchase price crept over the limit.
Looking further ahead, a new First-Time Buyer Isa is planned to replace the Lifetime Isa from April 2029. It will allow annual contributions of up to £4,000, with a 25 per cent bonus capped at £20,000 in total. Unlike the current product, the bonus will be calculated on the final account balance, including any interest or investment growth. It will be open to anyone aged 18 or over, with no upper age limit — the Lifetime Isa is currently only open to those aged 18 to 39 — and holders of both products will not be able to transfer funds between them, though they will be able to use both towards the same purchase.
More homes promised alongside the scheme
Beyond the deposit scheme, the Government has pledged an extra £1.5 billion to deliver around 10,000 homes across England, prioritising social rent and council housing. That takes total funding for the social and affordable homes programme to more than £40 billion over 10 years, with the Chancellor’s broader housing plans placing particular emphasis on expanding the supply of council homes.
With the first loans under the Your First Home scheme expected from April 2027, the months ahead will show whether lenders embrace the equity-loan model and how quickly London buyers — facing the country’s highest prices and some of its tightest affordability — are able to use it. The full eligibility guidance, and the list of participating lenders, are the details to watch before pre-registration opens in December.
