ULTRA-low deposit mortgages are set to make a comeback when Chancellor Rishi Sunak outlines his Budget later today.

Details are set to be revealed at lunchtime, but it is expected a new scheme encouraging banks and building societies to offer mortgages with a 5 per cent deposit will be among them.

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.

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.

And the number of properties on offer with a five per cent deposit also plummeted during the pandemic.

But how much do you have to earn to be able to take advantage of this new scheme?

The average property sold to first-time buyers in the UK is just over £200,000.

So taking an example of a property at £200,000, the 5 per cent deposit means you will need a deposit of £10,000 - half that in comparison to standard mortgages.

The 5 per cent deposit means you will need to borrow a 95 per cent mortgage, to the value of £190,000.

Mortgage providers generally offer borrowers 4.5 times their salary. This means you would have to earn roughly £42,000 per year in this scenario.

Whilst this may be achievable in some circumstances for couples, single people looking to buy their first home are unlikely to be earning that amount.

It also has prompted fears that this will not help those who have savings but don't earn enough to take out a mortgage for the rest of the price of their property.

In this example, if you can afford a 10 per cent deposit, you need a £40,000 salary to be offered the mortgage you require - lower than in the 5 per cent deposit scheme.

This has led to speculation that the affordability checks could be relaxed.

A government guarantee scheme should also protect new homeowners from getting into negative equity - where house prices fall and they are paying for a mortgage higher than the value of their property.