New £5k deposit mortgage at 99% LTV for first-time buyers – is it a good idea?

4 min Read Published: 03 Apr 2024

Yorkshire BS launches £5k deposit mortgage for first-time buyers - how it works and is it a good idea?

Yorkshire Building Society has launched a mortgage offering first-time buyers the opportunity to buy a home, costing up to £500,000, with a deposit of just £5,000. The new mortgage deal, which allows a loan-to-value (LTV) of up to 99%, has been launched alongside a regular saver savings account called the First Home eSaver that will allow aspiring homebuyers to earn 5% interest on their savings.

In this article, we explain how the £5k Deposit Mortgage works, who can qualify and what you should consider before choosing a low-deposit mortgage.

What is The £5k Deposit Mortgage?

The £5K deposit mortgage is a mortgage for first-time buyers whose deposit equates to as little as a 1% of the purchase price of the house they wish to buy. The ‘£5k’ refers to the minimum deposit amount required in order to secure borrowing that can be used to buy a house that costs up to £500,000.

The mortgage is offered by the Yorkshire Building Society and aims to help first-time buyers struggling to save enough money to get onto the property ladder. Yorkshire BS's director of mortgages, Ben Merritt, commented that the deal could “encourage a level playing field for those who don’t have financial support from their families to fall back on”.

Specialist mortgage advice for first-time buyers

Our partner Tembo is a specialist mortgage broker that offers tailor-made mortgage solutions for people with smaller deposits including Guarantor, LTV and first-time buyer schemes.
 

Find out more*

How does the £5K deposit mortgage work?

This low-deposit mortgage will be offered to homebuyers with at least a £5,000 deposit which can be gifted from an immediate family member and is offered on a 5-year fixed deal. Essentially, the deal allows first-time buyers to borrow at over 95% LTV which is usually the maximum LTV a lender will offer. You can search for the best mortgage rates for various levels of deposit using our mortgage rate comparison tool.

Below we outline the main features of this mortgage deal as well as the restrictions that apply.

£5k deposit mortgage features

Mortgage feature
Minimum deposit £5,000
Minimum property purchase price £100,001
Maximum property purchase price £500,000
Maximum loan-to-value (LTV) 99%
Initial fixed interest rate 5.99%
Interest rate fixed period 5 years
Property type Only houses (no flats or new builds)
Mortgage type Repayment (capital and interest)
Mortgage term 5 to 40 years
Maximum age at the end of mortgage term 70 years old
Overpayment allowance Up to 10% of loan value each year (early repayment charges apply if you exceed this amount)
Standard variable rate once deal ends Currently 8.24%

How to qualify for the £5K deposit mortgage

Mortgage applicants looking to secure the £5K deposit mortgage can apply directly to Yorkshire BS or arrange it through the building society’s intermediary business, Accord Mortgages.

You must not have owned a property before and if you are applying jointly then at least one applicant must be a first-time homebuyer and no applicant should own a home at the time of applying. The mortgage deal is only available in England, Scotland and Wales meaning it is not available in Northern Ireland or for purchase of properties in Northern Ireland.

YBS will lend up to 4.49 times the income of each applicant subject to an affordability assessment and credit check.

Are low-deposit mortgages a good idea?

There are risks to purchasing your home with a very low deposit and these should be considered carefully before you choose this type of mortgage offer.

The obvious risk is that even a small fall in property value could put you in a situation where you are in negative equity. This means that your mortgage loan will exceed the value of your home. Property prices do fluctuate and if the value of your property reduces to below your mortgage loan amount, you could find it difficult to remortgage to a new mortgage deal once your fixed period comes to an end. You may be able to overpay your mortgage during the 5-year fixed period in order to reduce your mortgage amount more quickly which could offset some of the risk of negative equity but remember that you are limited to 10% overpayments each year.

If you do struggle to remortgage once the fixed-rate period ends you will be moved on to the higher standard variable rate (currently 8.24%) which will make your monthly mortgage payments increase.

Alternatives to the £5k deposit mortgage

Skipton Building Society's Track Record Mortgage offers renters the opportunity to buy a house with no deposit at all as long as the mortgage payment amount does not exceed the monthly rent amount they have paid for at least 12 months. If you do not have a track record of paying rent then there are also a number of shared ownership schemes that can give first-time buyers a way to own part of their first home whilst taking steps towards owning it outright over a period of time.

Often the most suitable mortgage solution for first-time buyers can be pieced together using several home purchase schemes including guarantor mortgages so it is wise to get independent advice that will guide you to the right solutions for your particular needs.

Getting first-time buyer mortgage guidance

Buying your first home is a big step and one that is often challenging, especially in this period of high living costs that are making it difficult for applicants to meet lenders' affordability criteria. Mortgage deals based on high-interest rates are daunting, especially with the risk of negative equity running alongside this. So it's fair to say that most first-time buyers should explore all their options before going ahead.

Tembo* is a specialist mortgage broker where the advisers are well-versed in specific mortgage deals and home purchase schemes to suit first-time buyers. They can access a wide range of mortgage deals from over 100 lenders and schemes. You can arrange an initial conversation with a Tembo mortgage broker to discuss your mortgage needs and options with no obligation to go ahead.

YBS’s First Home eSaver account

Yorkshire Building Society also launched a regular saver called the First Home eSaver account that offers a 5% variable interest rate on up to £500 monthly savings. Account holders can save for up to 2 years and access the account once a year without any penalties on the anniversary of the account opening. The account allows savers to build a deposit towards buying their first home. You can find a range of regular savings account options in our article, "Best regular savings accounts in the UK" which we update weekly.

 

 

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