First-time buyers are relying increasingly on high loan to value mortgages to purchase homes, as surging rents and a shrinking private rental sector erode their ability to save for deposits.

New analysis of UK Finance data by digital surveying platform HouzeCheck reveals a notable shift in the way first-time buyers are financing property purchases.

Across England, the average LTV on a new first-time buyer mortgage rose from 74.7% in the first quarter of 2024 to 77.1% in the same period of 2025 — a 2.4 percentage point increase in just 12 months.

Scotland, however, now leads the UK in LTV levels among new first-time buyer loans. Average LTVs for first-time buyers north of the border climbed from 81.0% to 82.4% over the same period, surpassing all other UK nations and English regions, including Greater London.

Richard Sexton, commercial director at HouzeCheck, said the increase in leverage does not suggest renewed buyer confidence but instead reflects deteriorating affordability.

“The days of massive equity cushions are over – and they are unlikely to return anytime soon,” he said.

“First-time buyers are borrowing more to finance property purchases. Some would argue that it’s a sign of confidence in the market. I don’t think that’s the case: it’s a sign that potential first-time buyers living in rented accommodation can no longer save for deposits.”

He added that the supply of rented homes has dwindled, pushing rents higher and squeezing saving capacity. “As landlords have left the market in the face of unhelpful regulation, the supply of rented property has shrunk, and rents have risen.

“There’s no sense that first-time buyers have hit a ceiling in how much they can stretch, either – look at the increasing number of zero deposit mortgages available now.”

Sexton pointed to Scotland’s earlier adoption of landlord-targeted housing policy as a key factor behind its high LTV levels. “The average LTV for a new first-time buyer mortgage in Scotland is high, even compared to London. And it’s still rising.

“The problem is that buyers in Scotland haven’t been in a position to save for decent deposits for longer because the landlord exodus started earlier there.

“Housing is a devolved matter and anti-landlord legislation started earlier north of the border nudging up rents, limiting tenants’ ability to tuck money away.”

He warned that while zero deposit mortgages may lower the barrier to entry, they increase the vulnerability of borrowers to house price volatility.

“With no equity buffer, or just a thin one, negative equity becomes a real risk — especially if the market softens or economic conditions tighten unexpectedly,” he said.

Beyond Scotland, the fastest LTV growth among first-time buyers is being seen in East Anglia, where the average rose from 73.6% to 76.2%, followed by the South East (74.0% to 77.3%) and Greater London (67.1% to 72.0%).

SYSTEMIC RISK WARNING

The shift toward higher leverage, Sexton warned, could introduce systemic risks. “Critically, if high LTV borrowing becomes the new normal, it risks increasing systemic risk across the housing market. We need to bear that in mind in England, where there’s some very misguided landlord legislation on the horizon.

“A generation of buyers taking on maximum leverage to buy homes when prices are by no means rising could create a house of cards — one that lenders, regulators, and the wider economy may ultimately have to reckon with.”

“Responsible lending and robust affordability testing are now more vital than ever”

He added that high LTV borrowers often face steeper monthly repayments, and are more vulnerable to financial shocks. “Income shocks, such as job losses or rising living costs, could quickly push borrowers on stretched budgets to breaking point.

“In an environment where inflation remains unpredictable and the job market is softening very rapidly, first-time buyers may find themselves trapped in costly deals they can’t easily refinance their way out of.”

The trend is not confined to first-time buyers. Home movers, too, are taking on more debt relative to property values. The average LTV on a new mortgage for movers in England rose from 63.1% to 64.9% over the same 12-month period.

Sexton concluded that maintaining rigorous affordability checks will be crucial as more buyers stretch their borrowing limits. “Responsible lending and robust affordability testing are now more vital than ever to prevent enthusiasm from tipping into overextension.

“This is a trend the mortgage industry needs to keep an eye on.”