A mortgage expert has warned there is a catch to the government's new Your First Home scheme, which offers first-time buyers a 2.5 per cent deposit route into new-build homes in England.
How the scheme works
The government announced the Your First Home scheme on September 26, saying it is expected to support deposits of 2.5 per cent alongside government-backed equity loans of up to 20 per cent for eligible buyers purchasing participating new-build properties in England.
Mortgage expert Joseph Lane, founder of Mortgage Lane, has warned that it does not tell the whole story.
Equity stake explained
"This is the bit prospective buyers need to understand," he said. "The government won't simply be lending you 20 per cent of the purchase price to repay later as a fixed amount, it takes an equity stake equivalent to 20 per cent of the property's value."
For example, on a £250,000 property, this would mean a £6,250 deposit, a £193,750 mortgage and a £50,000 government equity loan.
"If that property rises in value to £300,000, the government's 20 per cent share becomes £60,000 with buyers therefore repaying £10,000 more than they originally borrowed," Joseph added.
Interest and eligibility details
He also stressed that the arrangement works differently from a conventional loan because the amount repayable can change with the value of the property: "And though the initial interest-free period sounds attractive, we don't yet know the full interest and equity structure for 'Your First Home'. Under 'Help to Buy', interest began after five years and the equity loan ultimately had to be repaid against the property's then-current value."
The government has confirmed the scheme will initially have an interest-free period, while household income caps and local property price caps are also planned. Further details, including costs and implementation timelines, are due at the October Budget.
New-build limitation
Another limitation is that the scheme is intended for new-build homes, rather than existing properties. ONS figures show that in the year to September 2025, the average new dwelling sold for £355,000 compared with £290,000 for an existing dwelling in England and Wales.
Lane continued: "Buyers aren't simply being given a 2.5% route into the housing market; they're being given a 2.5 per cent route into new build housing."
The government says the scheme is intended to help people who struggle to save a deposit, while the ONS reported that 28.7 per cent of 20 to 34-year-olds in the UK lived with their parents in 2025, up from 25.4 per cent in 2015.
He also said the eligibility rules remain another major unknown: "We know the scheme is intended for first-time buyers in England, buying a new-build from a participating developer, but the government has confirmed that household income limits, local property price caps and further eligibility details will come at the budget."
The government has said developers will also be expected to contribute towards the costs of the scheme, with further information due from the Chancellor at the October Budget.
