Building society launches new £5,000 deposit mortgage for first time buyers
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 borrow up to 99 per cent of the value of a property worth up to £500,000. For a typical first-time buyer property priced at £200,000, a £5,000 deposit would be 2.5 per cent of the purchase price, with the remaining 97.5 per cent borrowed as a mortgage.
The new mortgage is available directly from Yorkshire Building Society or through brokers via Accord Mortgages. Ben Merritt, the director of mortgages at Yorkshire, said research shows that £5,000 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”. The deal, which is only available to first-time buyers, offers a five-year fixed-rate mortgage at 5.99 per cent. Borrowers must be under 70 years old at the end of the mortgage term.
The mortgage is not available for new-build properties or flats, and all loans are subject to strict credit scoring and affordability checks. Mr Merritt said: “While £5,000 represents a 1 per cent 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.”
Previous research from the society indicates around two in five (38 per cent) first-time buyers receive financial help from friends and family to have the chance of stepping on to the housing ladder.
Mr Merritt said: “The society’s research among 500 first-time buyers for its Home Truths report, published in September 2023, showed that 78 per cent of people in this category feel homeownership is becoming an elite privilege while 63 per cent believe the UK is in danger of becoming a nation of renters.”
Meanwhile, there are other lenders that offer deals for hopeful home-owners who could be struggling to save for a deposit. For example, Skipton Building Society offers a ‘track record’ mortgage.
This helps renters get on the property ladder with potentially no deposit needed. To do this, it uses borrowers’ records of rental payments to help work out what they could be able to borrow.
Other lenders offer deals which allow family members to put in savings as security for a set time period. This includes Barclays’ family springboard mortgage.
Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said: “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 continued: “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.”
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