London, Feb 3, 2026, 16:27 GMT
- Santander UK launched a five-year fixed mortgage that allows borrowing up to 98% of a home’s value
- The deal requires at least a £10,000 deposit and is capped at £500,000 borrowing
- Brokers and consumer groups flagged higher costs and negative-equity risks for ultra-low-deposit borrowers
Santander UK has launched a mortgage for first-time buyers that can be taken out with as little as a 2% deposit, pushing the bank into territory most mainstream lenders have avoided since the financial crisis. The loan-to-value (LTV) ratio measures the loan against the property price.
The bank said it is trying to tackle the deposit hurdle, after its own research found more than half of UK adults see saving for a deposit as the biggest barrier to buying. David Morris, head of homes at Santander UK, said “the average first-time buyer with Santander put down a deposit of more than £85,000” last year. cherryplc.co.uk
Brokers said the product is likely to add pressure on rivals as lenders compete for new business. David Hollingworth, associate director at L&C Mortgages, called it an “important addition from a major lender”, while Nick Mendes at John Charcol said it marks a “big psychological shift” for the market. mortgagesolutions.co.uk
On its website, Santander said the deal is open to first-time buyers only, with a minimum deposit of £10,000 and borrowing between £190,001 and £500,000. The bank warned that a higher LTV can mean a higher interest rate, and that falling home values can leave buyers owing more than the property is worth — known as negative equity.
A £10,000 deposit only works out as 2% if the property costs £500,000. For cheaper homes, the same £10,000 deposit represents a larger share of the purchase price, even if the mortgage still reaches close to the 98% cap.
The Financial Times said Santander estimates the offer could cut the time needed to save a deposit by roughly four years, and expects other big lenders to watch the response. It pointed to competing low-deposit options such as Skipton’s Track Record mortgage and Barclays’ Family Springboard mortgage.
Aaron Strutt, product director at mortgage broker Trinity Financial, said it was notable to see “one of the bigger banks” offering a deal aimed at buyers with smaller deposits, and argued that many renters with good credit are struggling to build savings while paying high living costs. Trinity Financial
But ultra-low-deposit borrowing comes with obvious traps. The Times said the rate is higher than deals available to buyers with 5% deposits, and cited examples of cheaper fixes from the Co-op Bank and Nationwide. It also reported that 23 mortgages above 95% LTV are currently on the market — the most since 2009 — and said critics warn that looser lending can leave borrowers exposed if house prices fall.
The new Santander deal is restricted in several ways: it is aimed at first-time buyers and excludes flats, new-build homes and Northern Ireland. Borrowers are also committing to a five-year fixed term, which can limit flexibility if they need to refinance or move early.
Santander said applicants still face its affordability checks, including limits on how much it will lend relative to income. Even for borrowers who can meet those tests, the economics hinge on what happens to house prices and whether they can build equity fast enough to remortgage onto cheaper rates when the fixed period ends.
