A new mortgage scheme has been launched by Yorkshire Building Society, which could help first-time buyers get on the property ladder with just a £5,000 deposit. This means that hopeful homeowners could potentially borrow up to 99 percent of the property value.
The building society’s new deal is available to first-time buyers across England, Scotland and Wales, allowing them to purchase a property valued at up to £500,000 with a £5,000 deposit.
For those looking to buy a typical first-time buyer property priced at £200,000, a £5,000 deposit would represent 2.5 percent of the purchase price. The remaining 97.5 percent would be borrowed as a mortgage.
This new mortgage can be accessed directly by customers or via brokers through Accord Mortgages, the lender’s intermediary-only arm.
Ben Merritt, the director of mortgages at Yorkshire Building Society, said their research suggests that a £5,000 deposit could significantly reduce the time it takes for first-time buyers to become mortgage-ready.
He added that this could create a “level playing field for those who don’t have financial support from their families to fall back on”.
Under this deal, which is only available to first-time buyers, borrowers with a minimum deposit of £5,000 could secure a five-year fixed-rate mortgage at 5.99 percent.
The maximum age for borrowers at the end of the mortgage term is 70.
However, the mortgage is not available for new-build properties or flats, and the society stated that loans are subject to strict credit scoring and affordability checks.
Mr Merritt stated: “While £5,000 represents a one percent deposit for those who need to borrow the maximum amount available, the key is that customers are still putting money into a deposit, they still have to demonstrate strong creditworthiness and pass an affordability assessment to be eligible for a £5,000 deposit mortgage.”
“We have a duty to encourage financial responsibility in anyone taking out a mortgage.”
Earlier research from the society suggests that nearly two out of five (38 percent) first-time buyers get financial help from friends and family to step onto the property ladder.
Mr Merritt added: “The society’s research among 500 first-time buyers for its Home Truths report, published in September 2023, showed that 78 percent of people in this category feel homeownership is becoming an elite privilege while 63 percent believe the UK is in danger of becoming a nation of renters.”
Other lenders also offer deals for potential homeowners who may find it hard to save for a deposit.
Skipton Building Society offers a “track record” mortgage, which helps renters to make the jump on to the property ladder, potentially with no deposit needed, subject to terms and conditions. Skipton uses borrowers’ records of rental payments to help work out what they may be able to borrow.
Some lenders also offer deals where family members put up savings as security for a certain time period such as Barclays’ family springboard mortgage.
Last May, it was revealed that subscriptions to services like Netflix or Spotify could help first-time buyers secure a mortgage. This came as a result of a partnership between Leeds Building Society and credit information firm Experian.
Leeds Building Society linked up with the Experian Boost service, which takes into account additional evidence of a borrower’s good financial behaviour when making lending decisions.
Rachel Springall, a finance expert at Moneyfactscompare.co.uk, commented: “This new deal from Yorkshire Building Society will no doubt be popular among aspiring buyers who can’t get their deposit to stretch far enough to get on to the property ladder. The mortgage market could always do with more innovation to support first-time buyers, so it will be interesting to see if any other lenders follow suit.”
“Anyone who borrows at a higher loan-to-value would be wise to overpay their mortgage whenever they can to gain more equity and aim to reach a lower loan-to-value bracket where cheaper deals could be found when they come to refinance.”
“If there are any concerns about falling into negative equity with a high loan-to-value deal, borrowers must speak to their lender and seek advice immediately.”
She added: “Due to the cost of living, aspiring homeowners may find it difficult to make bigger monthly savings towards a deposit, especially if they are spending a large portion of their salary on rent.”
“Cutting down on non-essential outgoings is wise but buyers also need to be conscious of any hikes to their utility bills or the cost of commuting in the months ahead. Seeking a longer-term fixed mortgage may be a better choice for borrowers looking for peace-of-mind with their monthly repayments.”
Ms Springall advised homebuyers to value independent financial advice and to double-check eligibility criteria.
