Aspiring home-buyers in northern England and Scotland could particularly benefit from a new 5% deposit mortgage scheme, experts have suggested.

The mortgage guarantee scheme will be available to current home-owners as well as first-time buyers looking for a property for up to £600,000.

The initiative will be available from April and is designed to increase the appetite of lenders to offer high loan-to-value mortgages to creditworthy customers across the UK.

The scheme will provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of just 5%.

Buyers will have the option to fix their initial mortgage rate for at least five years, giving them certainty over their repayments.

The scheme will be available for new mortgages up to December 31 2022 and will be available on new or existing properties.

Richard Donnell, research director at Zoopla, said: “Supporting buyers with small deposits is key to widening access to home ownership for a part of the mortgage market that has been under-served.

“Our analysis shows the scheme will have the greatest benefits for buyers in lower value housing markets in northern England and Scotland, where a 95% mortgage is more attainable.

“The scheme will have less impact for buyers in southern England, where high house prices are a major barrier to being able to afford a 95% mortgage. This all supports the levelling up narrative and policy approach of Government.”

According to Zoopla research, mortgage lending for people with a deposit of less than 10% remains limited – just 4% of mortgages were at this level in the third quarter of 2020, down from nearly 7% in mid-2019.

Many low-deposit mortgages vanished from the market last year amid concerns about the wider economy, although many lenders have recently been returning to 10% deposit lending.

Under the new scheme, the Government will offer to take on some of the risk of low-deposit loans, meaning lenders would have some protection from potential losses.

Low-deposit loans are often seen as more of a risk because borrowers could end up in negative equity if house prices fall – meaning they owe more than their property is worth.

Lenders will be able to purchase a Government guarantee that compensates them for a portion of their losses in the event of foreclosure.

In early signs that borrowers will have a decent choice of deals, some big high street lenders have already shown support for the initiative.

Michelle Andrews, HSBC UK’s head of buying a home, said: “Here at HSBC UK we’re committed to supporting people to get on to or move up the property ladder.

“This scheme will make a real difference in enabling more first-time buyers and home-movers, with a minimum of 5% deposit, to get the keys to their new home, and we’re excited to play our part in it.

“Our team of dedicated mortgage advisers will be ready to provide expert advice and guidance on this scheme from April 19.”

Lloyd Cochrane, head of mortgages, NatWest Group, said: “We are pleased to be one of the participating lenders in the mortgage guarantee scheme.

“For those customers with smaller deposits looking for a mortgage, particular younger or first-time buyers, saving up for a big deposit can often be difficult, and we know people in these groups are some of the hardest hit by the effects of the pandemic.

“A Government-backed mortgage guarantee scheme will help segments of the market for whom home ownership has felt far out of reach in recent months.”

David Postings, chief executive of trade association UK Finance, said: “The banking and finance industry supports innovation in the mortgage market, particularly measures which enable borrowers to realise their dream of home ownership, through lower deposits.

“We look forward to working with the Government and lenders on helping to implement the scheme which will help many more people get on to the property ladder.”

A spokeswoman for the Building Societies Association (BSA) said: “The Government-backed guarantee for those who have just a 5% deposit is welcome news and this scheme will run alongside private sector solutions to the low deposit problem.

“A number of building societies have already re-entered the 90% to 95% mortgage market in past months and demand is likely to remain high.”

The new initiative follows in the footsteps of the UK-wide Help to Buy mortgage guarantee scheme, which was launched in 2013 and helped to reinvigorate the market after the 2008 financial crisis.

That scheme, which also offered 5% deposit mortgages, is no longer running.

It helped more than 100,000 households across the UK to buy a home, but it also drew accusations of pumping up property prices.

In recent months, house prices have jumped to record highs, fuelled by buyers wanting to move to make lifestyle changes, as well as a temporary stamp duty holiday, which has been extended in the Budget.