ULTRA-low deposit mortgages are set to make a comeback with a new five per cent deposit home loan guarantee scheme.

Details about the new scheme are expected to be set out in Chancellor Rishi Sunak’s Budget later today.

The scheme will be available to current homeowners as well as first-time buyers looking to buy a house for up to £600,000.

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

Under the 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.

Over the past year, with uncertainty around Covid-19, many lenders had been demanding deposits of 15 per cent from homebuyers but rates are dropping to normal levels again.

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.

All lenders under the scheme will offer mortgages fixed for at least five years as part of their range of products, providing options for consumers with smaller deposits who want the security and predictability of a mortgage with a fixed rate over a longer term.

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 five per cent 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.

Many low deposit mortgages vanished from the market last year amid concerns about the wider economy.

However, more recently, lenders have been bringing back low deposit deals, clustered around the 10 per cent deposit level.

For example, Bradford-based Yorkshire Building Society has launched two new 10 per cent mortgages exclusively for first-time buyers.

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.

Prime Minister Boris Johnson said previously: “I want generation rent to become generation buy and these 95 per cent mortgage guarantees help to deliver this promise.

“Young people shouldn’t feel excluded from the chance of owning their own home and now it will be easier than ever to get on to the property ladder.”

Mr Sunak has previously added: “By giving lenders the option of a Government guarantee on 95 per cent mortgages, many more products will become available, helping people to achieve their dream and get on the housing ladder.”