Building up a deposit for your first home is hard work – so the introduction of a mortgage that requires just a £5,000 deposit will be attractive to many. We take a closer look at Yorkshire Building Society’s 99% offer
Earlier this year, Yorkshire Building Society launched its 99% mortgage. Yes, you heard right, 99% loan-to-value.
This means you only need a 1% deposit or a minimum of £5,000.
Since the 2008 financial crisis, such low deposit deals have been virtually unheard of, unless you count family support products like Barclay’s Springboard, or deals like Track Record Mortgage from Skipton Building Society for reliable tenants.
But is it too good to be true? What’s the devil in the details?
We asked Pete Mugleston, MD and mortgage expert at Online Mortgage Advisor, about the low point and his verdict.
What is a 99% mortgage?
Very simply put, a 99% mortgage is a loan for 99% of the value of the property you want to purchase.
The product of the Yorkshire Building Society is for first-time buyers who have a deposit of at least £5,000 to put down on a property up to a value of £500,000.
There are no costs associated with the product and the interest rate of 5.99% is fixed for five years.
Mugleston said the introduction of this mortgage in March was a “bold move” by the Yorkshire Building Society, designed to make home ownership more accessible.
“This new initiative,” he explained, “is designed to encourage banks to offer mortgages covering 99% of a property’s value, in the hope of making it easier for people to take their first steps on the property ladder.” which reduces the size of the required down payment. .”
Where can you get a 99% mortgage?
Currently the only place you can get a 99% mortgage is through the Yorkshire Building Society.
This deal is available to existing customers who meet specific criteria and to new applicants who have previously demonstrated strong financial stability.
The good news is that Mugleston believes similar schemes will be rolled out by banks and building societies in the UK in the near future.
Is the 99% mortgage the same as the mortgage guarantee scheme?
The Mortgage Guarantee Scheme was created by the government in 2021 to encourage lenders to provide more mortgages with an LTV of 95%. The idea is that the government supports the loan to make the product less risky for lenders.
Under the scheme, which runs until June 2025, borrowers can take out a mortgage between 91% and 95% LTV and therefore require a minimum 5% deposit. The usual affordability checks are carried out. Several major lenders are participating in the plan.
Yorkshire’s product differs mainly by the size of the loan.
Mugleston said: “The 99% mortgage covers almost the entire value of the house, requiring just a 1% deposit, while the mortgage guarantee scheme can cover up to 95% of the mortgage, requiring a minimum 5% deposit. ”
Are 99% mortgages right for you?
While 99% mortgages may sound like a dream come true for those struggling to build a down payment, it’s important to be aware of the pitfalls.
Mugleston said: “This new scheme is ideal for individuals who have reliable income streams and a good credit history, but find it challenging to save for a large deposit.
“However, potential homebuyers should be aware of the risks associated with this scheme.
“The biggest downside is that homeowners face higher monthly payments compared to an average mortgage because they are borrowing a larger amount.
“It is important that buyers who choose to purchase a home with a 99% mortgage can comfortably afford these repayments over a longer term, even if interest rates remain high.
There is also a chance that the house will end up in negative equity. If property values decline, homeowners may owe more mortgage debt than the property’s current value.
“This situation could make it difficult to refinance or sell the property without incurring a loss over time,” Mugleston warned.
What are the alternatives?
The main competitor to Yorkshire’s 99% deal is Skipton Building Society’s Track Record mortgage, a no-deposit deal. It is intended for tenants with a strong history of rent payments. It has robust affordability checks, so eligibility is in no way guaranteed, but it certainly offers potential for first-time buyers who don’t have the backing of the Bank of Mum and Dad.
In that respect, family-supporting mortgages are also an option for first-time buyers without a down payment. They rely on family members to deposit a sum of money into a savings account with the lender to cover any risks. Several of the major lenders offer family supporting mortgages and you can read more about them in this article.
Don’t forget to look at shared ownership, where buyers can buy part of a property and rent the rest, as well as guarantor mortgages and the Deposit Unlock scheme. They are also covered in the article we linked to above.
How to find out about 99% mortgages
If you’re unsure which mortgage arrangement is right for you, it’s always wise to consult a mortgage expert who can help you find the best deal for your current situation, says Mugleston.
A broker or adviser can advise you on the best mortgage for you – whether that’s the 99% deal or another that is more suitable.