Yorkshire Building Society (YBS) has unveiled a groundbreaking £5,000 deposit mortgage specifically designed for first-time buyers.
The unique product allows potential homeowners with the deposit to buy a property valued up to £500,000.
The building society’s research has identified £5,000 as the crucial amount that could dramatically reduce the time needed to save for a mortgage.
It says that this could benefit aspiring homeowners across the UK, particularly those in areas with high property prices.
‘Make a huge difference to first-time buyers’
The director of mortgages at YBS, Ben 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 7.5 years (in London), to around 2.5 years.
“At the same time, lending responsibly is very important.
“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 £5k Deposit Mortgage.
“We have a duty to encourage financial responsibility in anyone taking out a mortgage.”
Responsible lending remains a priority
While the minimum deposit is just £1,000 for those borrowing the maximum, responsible lending remains a priority for YBS.
Borrowers must demonstrate strong creditworthiness and affordability to qualify, it warns.
The initiative aims to help those without access to family financial support.
Research conducted for the YBS ‘Home Truths’ report revealed that nearly 40% of first-time buyers rely on financial assistance from family or friends.
The report also found that a significant portion of first-time buyers believe homeownership is becoming increasingly unattainable.
The new product is available from Accord Mortgages – the lender’s intermediary-only arm.
‘First-time buyers are finding it harder than ever’
The chief executive of mortgage broker SPF Private Clients, Mark Harris, 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% 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.”
He added: “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?”
