Yorkshire Building Society launches 5% deposit mortgages for first-time buyers

YORKSHIRE Building Society is bringing back 5% deposit mortgages for first-time buyers as the low-deposit loans start to return to the market.

Lenders pulled almost all of these types of mortgage deals, which are favoured by first-time buyers, when the coronavirus crisis hit last year.

It's one of the first high loan to value (LTV) mortgage deals to make a comeback and will go on sale tomorrow, March 17.

The deal comes weeks after the government announced its mortgage guarantee scheme, which will allow first-time buyers to get a loan with just a 5% deposit.

But the building society has said it won't be taking part in the government programme, and is instead launching a separate offer.

Yorkshire's 5% deposit deal will be offered to first-time buyers only, and will come with a 3.99% rate fixed for five years and a £995 fee.

What help is out there for first-time buyers?

GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.

Help to Buy Isa – It's a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there's a maximum limit of £3,000 which is paid to your solicitor when you move. These accounts have now closed to new applicants but those who already hold one have until November 2029 to use it.

Help to Buy equity loan – The Government will lend you up to 20% of the home's value – or 40% in London – after you've put down a 5% deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.

Lifetime Isa – This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25% on top.

Shared ownership – Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25% to 75% of the property but you're restricted to specific ones.

"First dibs" in London – London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.

Starter Home Initiative – A Government scheme that will see 200,000 new-build homes in England sold to first-time buyers with a 20% discount by 2020. To receive updates on the progress of these homes you can register your interest on the Starter Homes website.

However, the deals will not be available for flats and new-builds purchases, as these can be more vulnerable to house price falls.

It means those using the Help to Buy equity loan scheme to get a foot on the property ladder won't be able to get the deal.

First-time buyers will be able to borrow a maximum of 4.49 times their yearly income, up to a maximum of £500,000, but it excludes furloughed workers.

The loan, which offers among the best rates, will only be available through Yorkshire's intermediary arm Accord for now.

In comparison, Barclays' Springboard mortgage offers a five-year fix for a 5% deposit mortgage at a cheaper 3.45% rate with no fee.

However, it requires your family to transfer 10% of the property purchase price into a savings account as security on your mortgage.

While Family Building Society offers a 3.64% rate for a similar mortgage and a £599 fee, but it also requires your family to provide security.

In other words, if you took out a £200,000 loan over 25 years with Yorkshire Building Society at a 3.99% rate, your monthly repayments would be £1,054.

In comparison, the repayments for a Barclays customer would be £996, while a borrower with Family Building Society would repay £1,016 a month.

Currently, there are just five 5% deposit mortgages, compared with 391 in March 2020, according to comparison Moneyfacts.

Yorkshire Building Society withdrew their 5% deposit mortgages on March 30, 2020.

Rachel Springall, finance expert of Moneyfacts, said: "It’s fantastic to see Accord launch a 95% loan-to-value mortgage onto the market which currently offers little choice for borrowers with a small deposit.

"The coronavirus pandemic hit this area of the mortgage market hard and as lenders pulled their deals it left little options for borrowers, some of which may be debating on whether to turn to the Bank of Mum and Dad."

While Jeremy Duncombe, managing director of Accord Mortgages, added: "We were one of just a handful of lenders that continued to offer 90% LTV mortgages during the pandemic and have been monitoring the market.

"We expect this new 95% mortgage will once again give first-time buyers another option to help them realise their home ownership ambitions."

Home buyers can now fix their mortgage for 40 years – but are they any good? We explain what you need to know.

While Metro Bank has launched new mortgages for buyers with poor credit scores.

We explain how to find the best mortgage for you, including lenders offering "no deposit" loans.

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