New £5,000 Deposit Mortgage for First-Time Buyers Launched

The Yorkshire Building Society has introduced a novel mortgage scheme that could enable first-time buyers to step onto the property ladder with a deposit of just £5,000. This new plan permits potential homeowners to borrow up to 99% of the value of a property worth up to £500,000. For example, for an average first-time buyer's house priced at £200,000, a £5,000 deposit would constitute 2.5 percent of the buying price; the remaining 97.5 percent can be borrowed as a mortgage.

This innovative mortgage is directly available from the Yorkshire Building Society or through brokers via Accord Mortgages. Ben Merritt, director of mortgages at the Yorkshire Building Society, suggests that this arrangement could significantly reduce the time it takes for first-time buyers to become prepared for mortgages, based on research showing how impactful £5,000 can be in expediting this process.

Merritt explained that this initiative might create equal opportunities "for those who don't have financial support from their families." The deal offers a five-year fixed-rate mortgage at 5.99 percent and is exclusively accessible to first-time buyers under the age seventy by the end of the term.

However, certain conditions apply, such as the unavailability of new-build properties or flats and strict credit scoring and affordability checks before loans are approved. Merritt emphasized customer responsibility, stating, "While £5,000 represents only one percent deposit for those needing maximum borrowing amounts, customers still need strong creditworthiness and pass an affordability assessment."

Previous data shows approximately two out of every five (38%) first-time homebuyers receive financial help from friends or family members in order to afford housing costs.

The society’s Home Truths report published in September 2023 revealed alarming statistics about homeownership perceptions among prospective buyers, with four-fifths believing it was becoming elitist while almost two-thirds feared the UK may transform into 'a nation of renters'.

Other lenders also offer deals for hopeful homeowners struggling to save deposits. Skipton Building Society offers a 'track record' mortgage that uses borrowers’ rental payment records to estimate borrowing capacity, potentially eliminating deposit requirements. Other lenders provide options wherein family members can secure loans with savings for a set period; Barclays' Family Springboard Mortgage is one such example.

Rachel Springall, a finance expert at Moneyfactscompare.co.uk, believes the Yorkshire Building Society's new arrangement will be popular among prospective buyers who find it difficult to gather hefty deposits. She advises higher loan-to-value borrowers to overpay their mortgages whenever possible in order to gain equity and access cheaper deals during refinancing.

Springall also cautioned aspiring homebuyers about the challenges of saving large monthly amounts towards deposits due to high living costs, especially when rent consumes significant portions of income. She recommended long-term fixed mortgages as viable alternatives, providing assurance about stable monthly repayments while emphasizing proactive communication with lenders if concerns arise regarding negative equity potential.