Jury’s Out - Is the YBS 99% mortgage a good idea?

Yorkshire Building Society new fee-free offer will enable first-time buyers across England, Scotland or Wales with a £5,000 deposit to purchase a property valued at up to £500,000.

This means aspiring homeowners could potentially borrow up to 99% of the property value.

The new mortgage is available directly to first time buyers only and via brokers through Accord Mortgages – the lender’s intermediary-only arm. Borrowers with a deposit of at least £5,000 could take out a five-year fixed-rate mortgage at 5.99%.

The maximum borrower age at the end of the mortgage term is 70.

YBS director of mortgages, Ben Merritt, says research by the society indicates that £5,000 is the amount that could shorten the time needed for first-time buyers to get mortgage-ready, and adds that it could help to encourage a “level playing field for those who don’t have financial support from their families to fall back on”.

The mortgage is not available for new-build properties or flats, and the society said loans are subject to strict credit scoring and affordability checks.

Merritt continues: “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 £5,000 deposit mortgage.

“We have a duty to encourage financial responsibility in anyone taking out a mortgage.”

Separate research for YBS shows that 38% of first-time buyers receive financial help from friends and family to step on to the housing ladder.

Rachel Springall, the finance expert at Moneyfactscompare.co.uk, cautions: “This new deal from Yorkshire Building Society will no doubt be popular among aspiring buyers who can’t get their deposit to stretch far enough to get on to the property ladder. The mortgage market could always do with more innovation to support first-time buyers, so it will be interesting to see if any other lenders follow suit.

“Anyone who borrows at a higher loan-to-value would be wise to overpay their mortgage whenever they can to gain more equity and aim to reach a lower loan-to-value bracket where cheaper deals could be found when they come to refinance. If there are any concerns about falling into negative equity with a high loan-to-value deal, borrowers must speak to their lender and seek advice immediately.

“Due to the cost of living, aspiring homeowners may find it difficult to make bigger monthly savings towards a deposit, especially if they are spending a large portion of their salary on rent. Cutting down on non-essential outgoings is wise but buyers also need to be conscious of any hikes to their utility bills or the cost of commuting in the months ahead. Seeking a longer-term fixed mortgage may be a better choice for borrowers looking for peace-of-mind with their monthly repayments.”