The five-year fixed rate product, offered at 5.99% and targeting proven first-time buyers, could slash the ‘timescale to buy’ period for those saving for £5,000 instead of a 5% deposit, according to YBS research.
All first-time buyers will be subject to affordability criteria and can target a maximum property value of £500,000.
The loan will be capital and interest, available on residential purchases only and be available up to a maximum age of 70 at the end of the mortgage term.
However, the product is not available for flats or new-build properties, which could be an obstacle for buyers in London and the South, and is not offered to borrowers in Northern Ireland.
The magic number for first-time buyers
Ben Merritt, the mutual’s director of mortgages, said research showed that £5,000 was the magic amount that would shorten the time needed for first-time buyers to get mortgage-ready, and make it fairer no matter where they live in the country.
For someone taking out the typical £200,000 first-time buyer mortgage, this would mean a loan to value (LTV) of 97.5%.
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 seven-and-a-half years (in London), to around two-and-a-half years.”
Applicants will be credit-scored in a similar way to borrowers of the lender’s current 95% LTV offering and, if a couple is applying jointly, one of the borrowers must be a first-time buyer.
Help for those buying alone
Merritt 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.
“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.”
The mutual has recommended that the government reintroduce some form of state support for first-time buyers and has called for an industry-wide review involving lenders, trade bodies and the government again to “fix what’s broken in the UK housing market.”
Iona Bain, broadcaster, financial journalist and author of Own It!, said: “For some, saving the traditional deposit of 5% or more of the value of their own home is simply not doable, particularly if they live in a more expensive part of the UK and/or don’t have family help to fall back on.”
She added: “It’s great to see a lender like Yorkshire Building Society playing its part and helping with innovative products like the £5k Deposit Mortgage.”
David Hollingworth, associate director of communications at mortgage adviser London & Country, said: “This product will offer an important alternative for those that can afford to take on a mortgage but find saving a big-enough deposit challenging. That was only underlined by last week’s figures confirming a sharp rise in rents.”
Andrew Montlake, managing director at Coreco mortgage brokers, said: “It is refreshing to see a lender take the bull by the horns and release an innovative scheme to help first-time buyers, and this should do just that.
“Whilst this alone will not solve the issues around homeownership, and some borrowers may not qualify given the fact that prudent lending and affordability rules are still rightly front and centre of this scheme, it is nevertheless a start and shows what a forward-thinking lender can do when they have some innovative flair and a passion for their market.”
