Despite seeming too good to be true, Yorkshire Building Society has introduced a new mortgage product that allows first-time buyers to secure a property for a deposit of just £5000. The scheme has been designed to help people get on the property ladder by giving them the opportunity to borrow up to 99% of the property value. However, there are restrictions to consider, prompting some experts to warn that, as yet, only a few may be able to benefit from this deal. Others claim that, even if this is the case, it still points to a new, dynamic way of levelling the playing field and providing opportunity to a generation of potential home-buyers.

For many Londoners, home ownership is an achievable dream, as they’re able to pass affordability checks and are in a position to make their monthly mortgage payments. Yet an often insurmountable obstacle they face is being able to afford the initial 10-20% deposit required for the average London mortgage. The £5k deposit mortgage is a way to change this. The minimum property price is £500,000, the loan is a 5-year fixed at 5.99% and is only available for first-time buyers who will be a maximum of 70 years old at the end of the repayment plan. All applicants are also required to pass a strict credit and affordability check.

Although the Government didn’t introduce a 99% mortgage in the autumn budget statement, when a scheme like this one is introduced it’s a real positive for those attempting to get onto the property ladder. Andrew Montlake, managing director at mortgage broker Coreco said, ‘In offering a mortgage with a deposit of £5000, this will open doors to new buyers who had been starting to give up hope of owning in the near future.’

In 2023, the average deposit put down by first-time buyers was £66.029, according to data provided by Halifax, which amounts to 24% of the home value. Meanwhile, the typical first-time buyer property was valued at £270,602, and as rents have increased sharply over the last few years, renters have found it increasingly difficult to save to buy. Chief executive of mortgage broker SPF Private Clients said news of the scheme comes as a welcome relief at a time of such high rents. ‘Ideally, there’d 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 get on the housing ladder, but must rent indefinitely.’ 

The term of the loan means it can be paid back over forty years. Monthly payments can be reduced via a longer-term length, but this will mean paying more interest overall. A clear indication of confidence returning to the market, the introduction of a scheme like this shows there’s a wider commitment to helping everyone seeking to get on the property ladder and successfully secure themselves a new home.   

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Sources: The Observer, LondonlovesProperty, Foxtons