Yorkshire Building Society has launched a fee-free mortgage with a deposit of just £5,000.
The product can be used to buy a property worth up to £500,000, meaning it can be used at 99% loan-to-value – without the need for a government scheme.
The mortgage costs 5.99% for a five-year fixed rate, while it is available through the lender’s intermediary arm, Accord Mortgages.
It cannot be used for new builds or flats.
Ben Merritt, director of mortgages at Yorkshire Building Society, 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.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, seemed broadly positive about the new product.
He said: “Product innovation is extremely welcome, particularly when soaring rents mean first-time buyers are finding it harder than ever to raise a deposit.
“There always has to be a balance however, and borrowers will have to pass stringent affordability assessments and credit scoring, particularly if borrowing more than 95 per cent LTV. There are also property exclusions, such as no flats or new-builds which don’t tend to fare as well in a property downturn, while there is a maximum property value limit of £500,000. First-time buyers must also take out a five-year fixed-rate product.
“Ideally, there would be no need for borrowers to take on high levels of borrowing. However, not everyone has access to the Bank of Mum and Dad, and is it fair that if you are not in this position you can never realistically afford to get on the housing ladder but must rent indefinitely?
“The threat of negative equity is greater the higher the level of borrowing but with only five-year products available, hopefully over that period of time the value of the property will increase. There is no interest-only option so borrowers will be paying back a small amount of the capital as well as interest each month, improving their equity stake.
“Critics may question what will happen if the buyer loses their job and can’t afford their mortgage payments but the same rings true for renters. Not everyone can move back in with Mum and Dad.”
