The UK cannot continue to be a nation of renters, lender says
Yorkshire Building Society is targeting first-time buyers with a new £5,000 deposit mortgage, up to 99% LTV mortgage, that it suggests will address one of the biggest challenges preventing people getting on to the property ladder – affordability.
Its new offering requires borrowers to put down a relatively modest deposit of £5,000, and is available exclusively to first-time buyers, for loans to values over 95%, and up to a maximum of 99%, on house purchases of between £100,000 and £500,000.
It is available on a five-year-fixed rate at 5.99%, on a capital and interest basis and on residential house purchases only, with 70 as the maximum age at the end of a mortgage term.
The product is available directly to customers and via brokers through Accord Mortgages - the lender’s intermediary-only arm.
Yorkshire Building Society believes the deal to be the first of its kind in the UK, and a further step in its approach to “common-sense lending”, with hopes high that it will help first-time buyers purchase their first homes, faster.
Ben Merritt (pictured), its director of mortgages, 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.
“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.”
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.”
How do first-time buyers view homeownership?
The Society’s research among 500 first-time buyers for the report, published in September 2023, showed that 78% of people in this category felt homeownership was becoming an elite privilege, while 63% believed the UK was in danger of becoming a nation of renters.
“This is a situation we believe can’t be allowed to continue,” Merritt said. “In our report, we’ve recommended that the government reintroduce some form of state support for first-time buyers, and an industry-wide review involving lenders, trade bodies and the government, is needed to start to fix what’s broken in the UK housing market.
“However, for now, we hope this £5k deposit mortgage will help first-time buyers overcome the deposit barrier as we believe this group deserve a chance of homeownership, because they are a vital part of a vibrant housing market.”
Reaction to the announcement, while broadly positive, has been mixed.
Mark Harris, chief executive of mortgage broker SPF Private Clients, responded: ”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.”
He said: “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?
“The threat of negative equity is greater the higher the level of borrowing. But with only five-year products available, hopefully over that period of time the value of the property will increase.”
He added: “There is no interest-only option so borrowers will be paying back a small amount of the capital as well as interest each month, improving their equity stake. Critics may question what will happen if the buyer loses their job and can’t afford their mortgage payments but the same rings true for renters. Not everyone can move back in with Mum and Dad.”
Could this help create the next generation of mortgage prisoners?
Amanda Symes-Reeves, product manager at fintech lender, MPowered Mortgages, was critical.
“The 1% deposit aspect of such mortgages is completely pointless as the borrower could find themselves in negative equity should house prices drop,” she commented. “At a time when climbing the housing ladder is already a struggle, should we really be saddling first-time buyers with even more debt?
“The risk is that such mortgages will create the next generation of mortgage prisoners. We think, therefore, it is imperative that these mortgages are only available via qualified mortgage advisers.”
Chris Sykes, senior mortgage broker at Private Finance, praised the innovative quality of Yorkshire Building Society’s and Accord’s offering.
“We love product innovation and this is definitely innovation,” he stated. “It will be key for many first-time buyers to get on the ladder, where perhaps it was seemingly impossible for them before. It doesn’t have stress tests like Skipton’s 100% mortgages and doesn’t require any parental help.
“It’s important to note that this product does come at a slight premium at 5.99%, but most 95% five-year fixed rates are between 5 and 5.3% so it is an understandable premium. Accord have done a good job at building in specific caveats to minimise negative equity risks. For example, they specify no interest-only, no flats or new builds.
“While this resembles great product innovation to support FTBs, there are risks that first-time buyers should be cautious of. Mortgages with higher loan-to-value ratios tend to incur greater costs due to the inherent risk of negative equity. We would love to see this type of low deposit scheme tied in with lenders similar to Perenna’s ultra long-term fixed rates, accompanied by appropriate break clauses, to avoid risks of becoming a mortgage prisoner.”
Broker and managing director of Contractor Mortgage Services, Ken James declared it was an exciting innovation, with some reservations.
“The new £5000 deposit mortgage will sit really well in the arsenal of options for brokers looking for ways to help their clients get on the property ladder,” he reasoned. “Let’s not shirk the fact that if you live in London this will not be the go-to product, as they are excluding flats from the scheme. But outside of London this is the golden ticket many have been looking for.”
Meanwhile, Dave Forest, managing director at Myriad Mortgage Services, commented: “Any innovation in products and criteria is welcome, and if it helps some first time buyers into homeownership and not having to wait or miss out, it has to be a good move.”
