Yorkshire Building Society has launched a new first-time buyer mortgage designed to help those who can only afford to put down a small deposit.
The £5k Deposit Mortgage, as the name suggests, requires first-time buyers to put down a minimum deposit of £5,000. They can then borrow as much as 99% of the property value, provided the home they want to buy costs no more than £500,000.
The mortgage is available to buyers in England, Wales and Scotland, but not those living in Northern Ireland, and it can’t be used to buy a flat or new build home, so you’ll only be eligible if you’re buying a pre-existing house. If you want to buy a property with someone else, at least one of you must be a first-time buyer and neither one of you can currently own a home.
The main advantage of Yorkshire’s new deal is that buyers don’t have to spend years saving up thousands of pounds as a deposit to get onto the property ladder. Ben Merritt, director of mortgages at Yorkshire Building Society said: “It creates a level playing field for those who don’t have financial support from their families to fall back on, after research for our recently-published Home Truths report showed that 38% of first-time buyers now receive financial help from friends and family to have the chance of stepping onto the housing ladder.”
Things to consider
If you’re thinking about buying a home using the £5K Deposit Mortgage, there are several things you’ll need to think about first.First, interest rates on low deposit mortgages will typically be higher than those offered to borrowers with bigger deposits. There are cheaper mortgage rates available if you can afford to put down a bigger chunk of your savings, but the flipside of this is that it will take buyers much longer to save a larger sum.
Mr Merritt 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 7.5 years (in London), to around 2.5 years.
”Buyers will be subject to the rigorous credit scoring and affordability checks that typically apply to those borrowing at a higher loan to value. The amount that you’re able to borrow will be based on your income and outgoings and you’ll need to demonstrate that you’ve managed borrowing responsibly in the past. You can read more about how your credit score can impact your application and how you can make improvements in our 'Guide to credit scoring'
