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First-time buyer mortgage launched with £5,000 deposit and £500,000 limit – but there are some restrictions

First-time buyers are being offered the option of paying a modest deposit of £5,000 and potentially borrowing up to 99% of a property’s value.

THE mortgage from Yorkshire Building Society is valid for places up to £500,000 and is free – but there are some key exceptions.

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It is not available for apartments or new build properties and potential borrowers must pass strict affordability and creditworthiness checks.

The task of saving for a deposit is one of the hurdles many first-time buyers face, as most lenders require a minimum of 10% up front.

Yorkshire Building Society mortgage director Ben Merritt said his research suggested £5,000 was the amount that could help young people onto property ownership.

He said it could help create a “level playing field for those who don’t have the financial support of family to fall back on”.

Buyers need at least £5,000 as a deposit as part of the deal, which offers a five-year fixed interest rate of 5.99%.

The building society is not the only lender offering deals aimed at first-time buyers, with 5% deposit deals available elsewhere. However, they often come with higher interest rates.

With a small deposit there is also a greater risk of falling into negative equity – due to an amount exceeding the value of your home – if a property loses value.

Skipton Building Society is another lender that has launched a product aimed at first-time buyers.

Its mortgage history looks at past rent payments to assess what a person may be able to borrow – and no deposit is required.

But here again, there are restrictions which exclude new apartments.


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Rachel Springall, of Moneyfactscompare.co.uk, said the Yorkshire mortgage was likely to prove popular among first-time buyers and it would be interesting to see if others launch similar offers.

However, she cautioned that a larger deposit is always better and should prove less costly in the long run.

“Anyone borrowing at a higher loan-to-value ratio would be wise to overpay their mortgage whenever they can to get more equity and aim to reach a lower loan-to-value bracket where cheaper deals could be found when it comes to refinancing,” Ms Springall said.

Higher interest rates in recent years have also made mortgage payments more expensive, but rates are expected to start falling later this year as inflation is now approaching the government’s 2% target.

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