A new mortgage with a 5% down payment has been launched in the UK: how it works.

According to The Sun: A new mortgage has been launched that opens the housing market for first-time buyers – now you only need to put down a 5% deposit.

The new 'partial' mortgage from Gen H is designed to help new buyers quickly obtain ownership, offering not only a low deposit but also reduced monthly payments.

What are the features of the new mortgage?

The 'partial' mortgage allows borrowers to obtain part of the loan with only interest payments. This means that each month you only need to pay the interest on the borrowed amount, not the principal sum.

At the end of the term, there may be outstanding amounts that also need to be repaid, but buyers will have the option to pay down the debt in the future to avoid this.

Experts note that such a mortgage is a unique opportunity for those who aspire to become homeowners but cannot afford the full loan amount, waiting for their incomes to rise in the future.

To obtain the Gen H mortgage, buyers must have a minimum household income of £50,000 and can borrow up to 80% of the loan based solely on interest payments.

“For many people, the path to ownership is not easy. In a country where the average property price is eight times the average salary, the best mortgage products can be tailored to the needs of individual buyers,” said Pete Dokar, Chief Commercial Officer at Gen H.

Pros and cons

Expert Nicholas Mendes emphasized that the main advantage of the new mortgage is its 'flexibility' for beginners. “Borrowers who can barely afford the full payment can use part of it to pay the interest to bring their monthly expenses to an acceptable level, while remaining 100% owners from day one,” he said.

“The downside is that any remaining interest payments must be paid off at the end of the term, so borrowers need a reliable plan for overpayments, future income, or capital growth,” added Nicholas Mendes.

Rachel Geddes from the Mortgage Advice Bureau noted: “The main advantage of a partial mortgage is that it helps with affordability.”

“This option may be suitable if you are aware of changes at your job that will lead to an increase in income,” she added.

Among the drawbacks is that if no overpayments are made or if you do not switch to covering the main loan later, you will have to repay the outstanding debt at the end of the mortgage term.

What support can first-time buyers get?

Many lenders have relaxed rules and introduced new programs this year to help first-timers during a time of rising property prices. Major lenders have reduced affordability requirements, allowing buyers to borrow more.

Nationwide now allows customers to borrow six times their annual income through their support program, and for buyers, it is enough to put down just a 5% deposit.

Santander’s offer, announced in August, allows borrowers to take up to 5.5 times their income.

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The launch of the new 'partial' mortgage from Gen H is an important step in supporting young home buyers amidst rising property prices. Easing the requirements for obtaining a mortgage, particularly reducing the deposit to 5%, can be a boost for those who are just planning to take their first step into the property world. Given the current economic realities, this is a timely initiative that will allow many families to finally obtain their own home.