Big change to £5k deposit mortgage scheme offered by Yorkshire Building Society means thousands more can get it
We explain how the mortgage scheme works
A MAJOR building society has expanded its 99% mortgage scheme to allow first-time buyers to purchase flats.
Yorkshire Building Society launched its £5k Deposit Mortgage last year, which allows borrowers to buy a property worth up to £500,000 with a deposit of just £5,000.
First-time buyers were not initially allowed to use to scheme to buy flats, but it has now been expanded its eligibility to include these types of properties.
The mortgage lender said the expansion follows feedback from brokers and customers, and all other terms and conditions of the scheme remain unchanged.
The product is available directly from Yorkshire Building Society and through Accord Mortgages for buyers across England, Scotland and Wales.
The mortgage is not available for new-build properties and the loans are subject to rigorous credit scoring and affordability checks.
The maximum age a borrower can be by the end of the mortgage term is 70.
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.
This means that the remaining 97.5% would need to be borrowed as a mortgage.
Yorkshire Building Society initially launched its scheme after research found that raising the typical 10% deposit on a first-buyer home was the biggest barrier to home ownership.
The research also indicated that around two in five (38%) first-time buyers receive financial help from friends and family to get onto the housing ladder.
The mortgage product has seen strong demand since it was launched and hundreds of first-time buyers have benefited from it.
Ben Merritt, director of mortgages for the Building Society, said: “We’re absolutely delighted with the impact this product has had – our teams have been overwhelmed by the very human stories illustrating the difference it has made to people’s life plans.
“Expanding its reach to include flat purchases is the natural next step and we’re really pleased to be able to respond to feedback by offering this additional opportunity for would-be first-time buyers to benefit.
“Our analysis suggests this change will particularly benefit people in city centre locations in areas like London, the South East and parts of Scotland, where property prices tend to be higher and flats are therefore a popular choice.”
David Hollingworth, associate director of communications at L&C Mortgages, said the scheme could be a welcome boost for those struggling to raise an adequate deposit.
“This could really help speed up the chance to buy and opening it to flats will help expand its reach,” he told The Sun.
Nicholas Mendes, mortgage technical manager at John Charcol, added that the scheme would most likely benefit higher earners with good credit histories who haven’t been able to build up a deposit because of the cost of living.
“That said, it’s always worth looking at other options in the market,” he said.
“Products like Skipton’s Track Record Mortgage, Barclays’ Springboard, and the Own New proposition also support first-time buyers, often with different criteria that might suit individual circumstances.”
It’s worth noting that if you’re getting a higher loan-to-value mortgage, it could be a good idea to overpay your mortgage wherever possible.
Your loan to value ratio is the amount you borrow compared to the amount you put down as deposit as a percentage of the property price.
You should speak to your lender and seek advice if you have any concerns about falling into negative equity with a high loan-to-value deal.
What is negative equity?
Negative equity is when you owe more money on your mortgage than the value of the property.
This could leave you out of pocket and also make it difficult to sell or remortgage your home.
If you have a low deposit mortgage and house prices fall, it could result in you being unable to sell or get a new loan.
This might mean you get stuck on an expensive mortgage once your fixed-rate deal expires.
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
What are other lenders offering?
The Sun recently found that three-year fixed-rate mortgages have taken the lead as the most affordable option in the current market.
MPowered Mortgages currently offers the lowest rate across the market at 4.07% for a three-year fix with a £999 arrangement fee.
This equates to monthly payments of £1,064 on a £200,000 mortgage taken out for 25 years.
Meanwhile, the lowest two and five-year fixes are from First Direct (4.23% and 4.13%, respectively), which come with a lower £490 fee.
Barclays also recently launched a “mortgage boost” which will let both first-time buyers and existing homeowners add another person to their application to increase the amount they can borrow.
This could help them get on the property ladder with a smaller deposit or move to a larger home.
For example, someone with an income of £37,500 a year and a deposit of £30,000 could typically borrow £168,375, allowing them to buy a home worth up to £198,375.
But with the mortgage boost, if they added another person with an income of £37,500 a year, they could borrow up to £270,000 – closer to the UK’s average house price of £282,000, according to the Office for National Statistics.
Meanwhile, TSB recently launched a new “5&5” concessionary mortgage option for its customers.
This means landlords offer their tenants a 5% discount on the property’s market value in exchange for putting down a minimum of a 5% deposit.
Concessionary mortgages allow aspiring homeowners to bag a property for less than the market value.
They are usually used by landlords selling a house to their tenants, or someone selling a property to a relative.
Among the lenders offering this mortgage type is NatWest.
What other first-time buyer schemes are available?
The First Homes scheme, which was launched in 2021, means prospective first-time buyers in England can get homes at 30% and 50% discounted rates compared to market price.
If the homeowner decides to sell the property down the line, the discount on the new value will be made available to any future buyer too.
You need to be aged 18 and over and a first-time buyer to qualify.
Each council has its own criteria for the scheme so make sure that you check with your local one.
Another option is the Right to Buy scheme which is a government initiative that lets council house tenants buy the property they rent.
These homes are offered at a reduced price to help renters get on the ladder.
You get a 35% discount on your council home if you’ve been a public sector tenant for between three to five years.
After five years, the discount increases by 1% for each extra year you’ve been a public sector tenant.