The Impact of Yorkshire Building Society’s New £5,000 Deposit Mortgage for First-time Buyers

Banks and building societies across the UK continue to explore ways of making homeownership more accessible for first-time buyers. A recent move by the Yorkshire Building Society has seen the launch of a brand new £5,000 deposit mortgage for first-time buyers, enabling applicants to borrow up to 99% of the value of their property.

So, how does this work? Who is eligible? What risks might come with this new property finance product – and how could it affect the UK housing market? In this article, the team at Mortgage Xperts explores these issues one by one.

How Does Yorkshire Building Society’s New Mortgage Product Work?

The new £5,000 deposit mortgage works similarly to other standard residential mortgage products but is intended specifically for first-time buyers.

Available only through Accord Mortgages – an intermediary-only arm of the Yorkshire Building Society – both brokers and potential customers themselves may apply directly.

The product can enable first-time buyers to access a five-year fixed-rate repayment scheme at 5.99%. It aims to assist individuals, couples and families who would otherwise be unable to make the move from rented accommodation to purchasing their property.

As with virtually any other property finance product, anyone applying for a mortgage of this kind will be subject to credit checks and must be able to provide proof of their ability to make monthly repayments.

A £5,000 deposit is around 2.5% of the typical value of a first home, which currently sits at approximately £200,000, making this a 97.5% LTV product in that particular case. In some circumstances, buyers may be able to access up to 99% LTV.

The current average deposit for a first-time buyer in the UK is £34,500 – so the Yorkshire Building Society’s new product will mean that prospective homeowners could achieve their dream for less than 14.5% of this.

Who Might be Eligible for this £5,000 Deposit Mortgage?

The Yorkshire Building Society’s new property finance product is strictly a first-time buyer mortgage. This means that applicants must not already own, or have owned a property.

The mortgage can only be granted to individuals aged 18 and over – and the maximum age of those applying for this particular product is 70.

Of course, as we have already mentioned, prospective homeowners who are hoping to use this kind of property finance option must satisfactorily pass the Building Society’s credit and affordability checks and must have access to sufficient funds to make the deposit.

What Are The Risks Involved?

There are always risks inherent in making a first-time buyer deposit. For example, with a lower down payment comes the likelihood of higher repayments, which may become less affordable if the homeowners’ circumstances change.

Falling into arrears may lead to the house being repossessed.

The risk of negative equity is also higher with a very high LTV.

If the property’s value drops below the amount of the outstanding mortgage, there is a very real risk of falling into negative equity and owing more than the property is worth.

What Impact Could 99% LTV Loans Have On The Housing Market?

The precise impact of this new type of mortgage on the market will naturally depend on uptake. However, there is the possibility that house prices could be pushed up further – due to greater demand and with the lower deposit potentially enabling more first-time buyers to enter the market.

Of course, it is also likely to influence a rise in first-time home ownership – which is, of course, the chief aim of this new product. After all, Yorkshire Building Society’s Home Truths report, published towards the end of the third quarter of 2023, revealed that 78% of first-time buyers considered homeownership at risk of becoming “an elite privilege”. At the same time, 63% felt that the UK was dangerously likely to become “a nation of renters”.

Final Thoughts

Whilst the new £5,000 deposit mortgage may be very useful for some first-time buyers, its very stringent requirements are likely to preclude many others who may not be able to meet such very strict criteria.

There are still plenty of other lenders that may be able to lend to them, albeit with a slightly higher required deposit.

Those who can find a 5% deposit may well benefit from the lower rates available from products like the 5.09% 5-year fixed rate mortgage offered by the Nationwide Building Society.

For further advice on affordable mortgages for first-time buyers, don’t hesitate to contact the specialists at Mortgage Xperts today. We’ll be more than happy to provide any information you require, always taking into account your current circumstances.