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First-time Buyer

First-time buyers can get on the property ladder with just £5k

First-time buyers can get on the property ladder with just £5k
Victoria Hartley
Written By:
Victoria Hartley

Yorkshire Building Society (YBS) has launched a £5k Deposit Mortgage, both direct and through intermediary brand Accord, in a bid to help prospective first-time buyers overcome the biggest barrier to homeownership.

The lenders have launched a five-year fixed rate product offered at 5.99% (fee-free) for first-time buyers able to raise just £5,000 for the deposit.

And this sum can be a gifted deposit, just as long as it’s from an immediate family member. Those with a Help to Buy ISA and Lifetime ISA can also use the schemes to help with the deposit. However, be mindful that they apply to properties worth up to £450,000.

It’s available for residential houses only – not flats or new build properties –  worth up to £500,000. This means the maximum loan available is £495,000 on a capital and interest repayment basis, which can be paid back over a maximum 40-year term.

As such, the maximum age at the end of the term is 70. Overpayments of 10% per annum are accepted.

Joint applications are accepted, but it does mean that one applicant must be a first-time buyer, never having owned a property in the past.

Another point to note is that it’s available to first-time buyers across England, Scotland and Wales only.

Applicants will be credit-scored in a similar way to borrowers of the lender’s current 95% LTV offering, but they’ll also need to have an enhanced credit score to be accepted. The maximum loan-to-income is 4.49.

YBS said its offering could slash the ‘timescale to buy’ period for those saving for £5,000 instead of a 5% deposit. However, the fact it’s not available for flats and new-build properties could still prove an obstacle for buyers in London and the South.

A £3,000 a month mortgage?

According to Nicholas Mendes, mortgage technical manager at John Charcol, high earners stand to benefit from the deal.

Calculations from the broker reveal that monthly mortgage payments stand between £1,000 and £3,000 depending on the term of the deal:

25-year, £5k deposit at 5.99%

  • Property value £500k – loan of £495k – monthly payment £3,187
  • Property value £400k – loan of £395k – monthly payment £2,543
  • Property value £300k – loan of £295k – monthly payment £1,899
  • Property value £200k – loan of £195k – monthly payment £1,256.

40-year term, £5k deposit at 5.99%

  • Property value £500k – loan of £495k – monthly payment £2,721
  • Property value £400k – loan of £395k – monthly payment £2,171
  • Property value £300k – loan of £395k – monthly payment £1,622
  • Property value £200k – loan of £195k – monthly payment £1,072.

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.”

He added: “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.”

‘Taking the bull by the horns’

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.”