It’s now possible to buy a house with a 2% Deposit.
Santander’s recent launch of a 98% Loan-to-Value (LTV) mortgage has certainly caused a stir in the UK housing market. This “My First Mortgage” product is designed to help first-time buyers climb onto the property ladder with a deposit as low as 2% . But is this game-changing help or a risky stretch? Let’s break down everything you need to know about this new offering.
What is the Santander 98% Mortgage?
Santander’s ‘My First Mortgage’ is a five-year fixed-rate mortgage available exclusively to first-time buyers . The headline feature is that it allows you to borrow up to 98% of the property’s value, meaning you only need a 2% deposit . This significantly lowers the biggest hurdle many face: saving a large lump sum .
Here are the key details at a glance :
- Interest Rate: 5.19% fixed for five years
- Minimum Deposit: £10,000 (for a property up to £500,000) So, Yes, you still need £10,000. A bit cheeky calling it a ‘2% deposit’ product given £10,000 is still a lot of money!
- Maximum Loan: £500,000
- Product Fee: £0
- Cashback: £250 on completion
- Mortgage Term: Between 5 and 40 years
The Pros: Why It’s a Big Deal
🚪 A Much Lower Barrier to Entry
The most obvious benefit is the deposit. Santander’s own data shows the average first-time buyer deposit with them in 2025 was over £85,000 . For many, saving that much while paying rent is a near-impossible dream. This product drastically reduces that savings goal, potentially allowing buyers to step onto the ladder years earlier .
🏦 A Major High Street Name
This isn’t a deal from a niche lender. As the first major high street bank to push beyond 95% LTV in recent years, Santander’s move adds significant credibility and trust to the high-LTV market . It could also encourage other big lenders to follow suit, increasing competition and choice for first-time buyers .
💷 Helpful Perks for First-Timers
Buying a first home is expensive. This product helps by having no product fee and offering £250 cashback on completion, which can be used towards legal fees, moving costs, or new furniture . It also accepts gifted deposits from family, which is a common way for first-time buyers to get on the ladder .
The Cons: The Strict Rules You Need to Know
While the 2% deposit grabs the headlines, the product comes with strict criteria that will rule out many applicants .
🚫 What You CAN’T Buy
This is a big one. The 98% LTV deal is not available on flats or new-build homes. It’s restricted to existing houses only . For many urban first-time buyers, particularly in London where flats are a common entry point, this is a significant blocker .
💰 The Affordability Squeeze
You still need a good income. Santander caps the loan at 4.45 times your annual salary . To borrow the maximum £500,000, you would need a joint or individual income of over £112,000 . For comparison, on some of their other products, borrowers can access up to 5.5 times their salary .
👤 Who ISN’T Eligible?
The application criteria are strict:
- ❌ Self-employed applicants are not eligible .
- ❌ If you’re buying jointly, both applicants must be first-time buyers .
- ❌ The mortgage is not available in Northern Ireland .
The Risks: What You Must Consider
⚠️ Negative Equity
This is the classic risk of a high-LTV mortgage. With only 2% equity from the start, even a small dip in the housing market could leave you in negative equity—where you owe more than your home is worth . This could trap you in the property, making it very difficult to sell or remortgage at the end of the five-year fixed term.
📈 Higher Interest Rates
A rate of 5.19% is a premium rate. Borrowers with larger deposits (e.g., 10% or 15%) can access significantly lower interest rates, meaning lower monthly payments . You are paying a premium for the privilege of a small deposit.
🔒 Potential Remortgaging Issues
When the five-year fix ends, you’ll need to find a new deal. If your property’s value hasn’t increased (or has fallen), you may still have a high LTV. This could limit your remortgage options to other expensive, high-LTV deals, meaning you could be stuck with higher payments for longer .
The Bottom Line: Is It Right for You?
The Santander 98% mortgage is a powerful tool, but it’s not for everyone. It’s best suited for:
✅ First-time buyers with a stable, employed income.
✅ Those buying a house (not a flat or new-build).
✅ Buyers with a long-term plan and the ability to potentially overpay.
✅ People for whom saving a 5% deposit feels like an impossible, multi-year grind.
It is not suitable for:
❌ Self-employed workers.
❌ Those looking to buy a flat or a new-build home.
❌ Buyers in Northern Ireland.
❌ Anyone stretching their finances to the absolute limit with no buffer.
Ultimately, this product is a significant and welcome addition to the market, but it requires careful consideration. As with any major financial decision, especially one with this level of complexity, speaking to a whole-of-market mortgage broker is essential. They can help you stress-test your finances and determine if this ladder rung is the right one for you.
