Yorkshire Building Society has become the first lender to bring a range of mortgages with 5 per cent deposits back to the market, potentially heralding a price war that could benefit first-time buyers.
Accord Mortgages, the intermediary arm of the building society, is launching the mortgages tomorrow with a five-year fixed rate of 3.99 per cent and a £995 fee.
The mortgages are exclusively for first-time buyers and will initially only be available via brokers.
Yorkshire Building Society’s 5% deposit mortgages could help first-time buyers get on the property ladder – but at 3.99%, interest rates are significantly higher than before the pandemic
Those buying flats and new-build homes are excluded from applying, and the maximum loan size is £500,000.
In addition, the first-time buyers will only be able to borrow 4.49 times their annual income.
For someone buying a £250,000 home, they would require a £12,500 deposit, rather than £25,000.
On borrowing the rest – £237,500 – and taking the mortgage on a 25-year term, repayments would be £1,252 per month during the initial period.
Chancellor Rishi Sunak announced his plan to offer government-backed 5 per cent deposit mortgages in the Budget earlier this month, but Accord said its product was not part of this scheme.
In his Budget speech, Sunak said Lloyds, Natwest, Santander, Barclays and HSBC would offer the mortgages starting in April, while others including Virgin Money would ‘follow shortly after’.
Unlike the Accord mortgages, those products will be available to home movers as well as first-time buyers, although the latter is likely to make up the bulk of applicants.
The average cost of a 5% or 10% deposit in different regions of the UK, according to Rightmove
Mortgages with 5 per cent deposits have not been widely available since the beginning of the Covid-19 pandemic, when many lenders pulled their low-deposit offerings due to staffing and capacity issues and changes in their risk appetite.
Ten per cent deposit mortgages were also pulled, but began to return to the market in the early part of this year.
In both cases, interest rates are significantly higher than those that were being offered in early 2020.
Flat out: Those buying apartments will not be eligible for the new Accord mortgages
Jeremy Duncombe, managing director of Accord Mortgages, said: ‘Part of our purpose as one of the UK’s largest building societies is to help people own their own home, and the unique challenges of the last year have made that harder than ever for some.
‘We expect this new 95 per cent [loan-to-value] mortgage will once again give first-time buyers another option to help them realise their home ownership ambitions.’
Duncombe also warned that the product could be withdrawn at ‘relatively short notice’ because Accord needed to ‘balance demand with being able to offer the high levels of service brokers and clients expect.’
Will other lenders follow suit?
More competition in the mortgage market is generally a good thing for buyers, as lenders often drive down rates in a bid to attract customers.
With at least six more lenders set to launch 5 per cent deposit deals in the coming weeks – according to the Chancellor’s Budget speech – this could well be the case for those with smaller deposits.
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Although buyers may wish to act fast because of the risk that Accord’s deal could be pulled, property experts said they might be wise to wait and see what rates other lenders come out with first.
‘There is no reason to believe this isn’t the start of the return of the 95 per cent LTV mortgage en masse’, said Dominic Agace, chief executive of Winkworth estate agents.
‘We have already heard that several other significant lenders are set to follow and will be launching their products in April. As more enter the market, the greater competition will lower rates.
‘As we have seen in the main mortgage market, greater confidence in the trajectory of the property market has encouraged increased lending and competition on mortgage products.’
Mark Harris, chief executive of mortgage broker SPF Private Clients, added: ‘As we have seen in the 90 per cent market in the past couple of weeks, increased competition has seen prices fall.
‘As more lenders launch their 95 per cent offerings, we would expect pricing to follow suit and come down accordingly. More competition in this space will be excellent news for borrowers.’
Brokers also warned about the impact that making too many mortgage applications can have on a buyers’ credit file.
‘I am sure that many first-time buyers will see this news and ask brokers to proceed with an agreement in principle application as soon as possible,’ said Gerard Boon of Boon Brokers.
‘However, if possible, I would advise that clients have patience and wait for other lenders to introduce their 95 per cent mortgage products before proceeding with Accord.
‘I expect other lenders to introduce 95 per cent LTV products in just a matter of weeks. This patience will prevent an unnecessary credit footprint from being left on the client’s credit file.’
He added that, although rates may come down, buyers would ‘have to accept that the interest rates are going to be far higher than those 95 per cent LTV products that were offered prior to the first lockdown.’
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