Yahoo Finance The new mortgage that lets you buy a £500,000 house with a £5,000 deposit
First-time buyers can now get a mortgage on properties worth up to £500,000 with a deposit of just £5,000.
Yorkshire Building Society’s new scheme is available for those looking to get on the property ladder without a big deposit.
However, brokers warn that in reality only a few may be able to benefit from the 99pc deal.
Borrowers cannot use the mortgage offer to buy a new build property or any type of flat, a popular choice for first-time buyers – particularly those buying in cities.
Furthermore, the five-year fixed rate of 5.99pc sits significantly higher than comparable deals on the market where interest payments start at 5pc for loans with a 5pc deposit. The Bank of England’s base rate is also forecast to fall below 5pc this year, meaning borrowers could find themselves paying higher interest for longer.
As with any mortgage lending, stress testing will apply and so buyers are likely to only be able to borrow 4.5 times their income, and have to be able to show they can afford interest payments of up to 8pc.
The new mortgage launches on Wednesday and is available directly to customers and via brokers through Accord Mortgages – the lender’s intermediary-only arm.
The Yorkshire’s director of mortgages, Ben Merritt, said research by the society indicates that £5,000 is the amount that could shorten the time needed for first-time buyers to get mortgage-ready.
He added that it could help to encourage a “level playing field for those who don’t have financial support from their families to fall back on”.
Ashley Thomas, director at broker Magni Finance, said: “If it is still tested at a 4.5x income multiple then you need to be earning over £100k based on purchasing at £500,000. In London you are not going to get any houses under half a million unless you are quite far out.
“However, if you are earning over £100,000 but you only have a £5,000 deposit then there are potentially other issues, and maybe you have overstretched yourself.”
Magni said it could work for a newly qualified lawyer who was on £50,000 or £60,000 and has just had a salary increase to £120,000 so hasn’t had time to save but can meet the payments and wants to get on the property ladder.
However, the low deposit level – as little as 1pc – runs the risk of leaving the owner in negative equity if the property values drop by 2-3pc.
If a first-time buyer used the product to buy a £285,000 property – the average house price in the UK, according to the ONS – their mortgage cost would be £1,803 a month for five years. And they would need a household income of around £62,000 in order to be eligible to borrow the amount.
Nicholas Mendes, at brokerage firm John Charcol, said that while those who benefit from the deal are likely to be high earners and prospective buyers with a good credit score that just simply haven’t been able to save a deposit amid high rents, there are other options on the market that overcome affordability and deposit barriers.
“Skipton Track record mortgage, Barclays springboard or even the recent Own New proposition all support the first-time buyer and home mover market with fewer caveats and in some cases cheaper rates,” he said.
HSBC and Barclays have both pushed down their fixed mortgage rates this week amid speculation that the Bank of England is looking at cutting its base rate.
Barclays is reducing its prices on some loans across its range by up to 0.25pc, while HSBC is cutting the interest rates on mortgages across both residential and buy-to-let products.
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