New mortgage helps first-time buyers get on property ladder with £5,000 deposit

A £5,000 deposit mortgage for first-time buyers has been launched by a building society, enabling aspiring homeowners to potentially borrow up to 99% of the property value.

Yorkshire Building Society said its new fee-free deal will enable first-time buyers across England, Scotland or Wales with a £5,000 deposit to purchase a property valued at up to £500,000.

For someone buying a typical first-time buyer property at £200,000, a £5,000 deposit would equate to 2.5% of the purchase price, with the remaining 97.5% being borrowed as a mortgage.

The new mortgage is available directly to customers and via brokers through Accord Mortgages – the lender’s intermediary-only arm.

The Yorkshire’s director of mortgages, Ben Merritt, said research by the society indicates that £5,000 is the amount that could shorten the time needed for first-time buyers to get mortgage-ready.

He added that it could help to encourage a “level playing field for those who don’t have financial support from their families to fall back on”.

Under the deal, which is available to first-time buyers only, borrowers with a deposit of at least £5,000 could take out a five-year fixed-rate mortgage at 5.99%.

The maximum borrower age at the end of the mortgage term is 70.

The mortgage is not available for new-build properties or flats, and the society said loans are subject to rigorous credit scoring and affordability checks.

Mr Merritt said: “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 £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%) 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% of people in this category feel homeownership is becoming an elite privilege while 63% believe the UK is in danger of becoming a nation of renters.”

Other lenders also offer deals for would-be homeowners who may be struggling 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 use 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.

In May last year, it was announced that aspiring homeowners could have their subscriptions to services such as Netflix or Spotify contribute to their ability to get a mortgage, following a new partnership between Leeds Building Society and credit information company Experian.

Leeds Building Society connected to the Experian Boost service, which allows extra evidence of a borrower’s good financial track record to be factored into lending decisions.

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 o 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 also highlighted the value of independent financial advice and checking eligibility criteria.