A new 99% mortgage aims to help first-time buyers get on the housing ladder earlier for just £5,000.
Yorkshire Building Society has launched its new £5,000 deposit mortgage to “help tackle one of the biggest issues preventing people from achieving their homeownership dreams”.
The product is believed to be the first of its kind in the UK, according to the mutual.
How does it work?
The mortgage enables first-time buyers with a £5,000 deposit to purchase a property valued up to £500,000.
The five-year fixed rate repayment mortgage is 5.99% and only available to first-time buyers.
It requires a minimum deposit requirement of £5,000 and a maximum property value of £500,000, which would represent a 99% mortgage.
But the £5,000 minimum deposit still applies even if the borrower buys a cheaper property, so not all mortgages will need to be for 99% of the property’s value.
For someone taking out the typical £200,000 first-time buyer mortgage, this would mean a loan to value (LTV) of 97.5%, for example.
Ben Merritt, director of mortgages at the building society, explained that research showed that £5,000 was the ‘magic amount’ that would shorten the time needed for first-time buyers to get mortgage-ready.
He said: “Our analysis showed a deposit of £5,000 – compared to a typical 5% – would make a huge difference to first-time buyers across the country by reducing the time it takes them to save up and achieve homeownership, from a maximum of seven-and-a-half years (in London), to around two-and-a-half years,” explained Ben.
“While £5,000 represents a 1% 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 £5k Deposit Mortgage. We have a duty to encourage financial responsibility in anyone taking out a mortgage,” added Ben.
“We hope this £5k Deposit Mortgage will help first-time buyers overcome the deposit barrier, as we believe this group deserves a chance of homeownership, because they are a vital part of a vibrant housing market.”
Industry reaction
Broadcaster Iona Bain said of the new launch: “Fresh solutions are needed to avoid first-time buyers giving up on the idea altogether, and it’s great to see a lender like Yorkshire Building Society playing its part and helping with innovative products like the £5k Deposit Mortgage.
“Raising £5,000 will be achievable for many more people and hopefully encourage them to save and make the other sound financial choices that are so important to getting and managing their own home, knowing that their goal is within realistic reach.”
Matt Smith, Rightmove’s mortgage expert, added: “It’s encouraging to see lenders continuing to try to innovate in the mortgage market, even after the Government abandoned its own plans to encourage lower-deposit mortgages in the Spring Budget.
“This new product has the potential to help some first-time buyers who fit the affordability criteria, but are struggling to raise a bigger deposit.”
The new mortgage is available directly to customers and through mortgage brokers via Accord Mortgages – the lender’s intermediary-only arm.
