The 5% deposit mortgages for first-time buyers being brought back by lenders

MORE mortgage lenders are bringing back 5% deposit deals to help first-time buyers get on the property ladder.

Lenders pulled almost all of these types of mortgage deals, which are favoured by first-time buyers, when the coronavirus crisis hit last year.

More mortgage lenders are bringing back 5% deposit deals to help firs-time buyers get on the property ladderCredit: Alamy

Their return comes ahead of the government’s new mortgage guarantee scheme, which will also allow first-time buyers to get a loan with a 5% deposit.

Available from April, the scheme has signed up major mortgage lenders including Barclays, HSBC, Lloyds Banking Group, NatWest and Santander.

In the meantime, a number of other lenders have already launched their own 5% deposit loans without government support.

Yorkshire Building Society was first to launch its deals in mid-March, and it’s since been followed by Skipton Building Society and Bank of Ireland.

What help is out there for first-time buyers?

GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.

Help to Buy Isa – It’s a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there’s a maximum limit of £3,000 which is paid to your solicitor when you move. These accounts have now closed to new applicants but those who already hold one have until November 2029 to use it.

Help to Buy equity loan – The Government will lend you up to 20% of the home’s value – or 40% in London – after you’ve put down a 5% deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.

Lifetime Isa – This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25% on top.

Shared ownership – Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25% to 75% of the property but you’re restricted to specific ones.

“First dibs” in London – London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.

Starter Home Initiative – A Government scheme that will see 200,000 new-build homes in England sold to first-time buyers with a 20% discount by 2020. To receive updates on the progress of these homes you can register your interest on the Starter Homes website.

And just yesterday, TSB also announced it’ll roll out 5% deposit mortgages from April 7.

Since March 1, the number of 5% deposit mortgages have increased from just five to nine deals, according to comparison Moneyfacts.

However, they’re still down from 391 in March 2020.

Eleanor Williams, finance expert of Moneyfacts, told The Sun: “It is great that we are beginning to see the return of high loan-to-value mortgages.

“The more lenders who offer products in this area of the market should provide more choice for borrowers, and increased levels of competition may result in more competitive rates for these customers.

“Anyone who is considering moving forwards with a new mortgage would do well to secure the advice and support of an independent, qualified adviser.”

Which lenders have brought back 5% deposit mortgages?

Below we round up where first-time buyers can get a 5% deposit mortgage.

The majority of other major lenders have signed up to the government’s mortgage guarantee scheme for next month’s launch.

Meanwhile, Nationwide Building Society said it’s currently exploring opportunities to bring back 5% deposit deals in the coming months.

It added that it already supports buyers with small deposits by offering 5% deposit deals to existing members via the Help to Buy scheme.

If you’re able to, it’s worth stretching your home deposit to 10% as you’ll be able to get a lower interest rate.

Yorkshire Building Society

Yorkshire’s 5% deposit deal is offered to first-time buyers only, and comes with a 3.99% rate fixed for five years and a £995 fee.

However, the deals aren’t available for flats and new-builds purchases, as these can be more vulnerable to house price falls.

First-time buyers can borrow a maximum of 4.49 times their yearly income, up to a maximum of £500,000, but it excludes furloughed workers.

The loans are only available through Yorkshire’s intermediary arm Accord for now.

Skipton Building Society

Earlier this week, Skipton Building Society brought back its 5% deposit mortgages, available exclusively to first-time buyers.

The home loans come with a fee-free five-year fixed rate at 4.17% with no product fee.

You’ll only be able to borrow up to 4.49 times your yearly salary, up to a maximum of £450,000.

Also keep in mind the loan can’t be used for new-builds or flats.

Bank of Ireland

On March 18, the Bank of Ireland brought back its 5% deposit mortgages.

The home loans have a five-year fixed rate of 4.05% with no product fee, and are available across the whole of the UK.

Available through intermediaries, the loans are available to first-time buyers, homemovers and both employed and self-employed applicants.

Customers can borrow up to £500,000, but you’re restricted to up to 4.49 times your yearly salary.

Sadly, you won’t be able to get the mortgage on a new-build.

TSB

TSB is launching its 5% deposit mortgages from April 7, and they’ll be available to both first-time buyers and home movers.

Customers will be able to borrow up to £500,000, but not for a new-build property or flat, which you’ll need a 15% deposit for at the bank.

The loans will be available direct with TSB and via brokers, but it’s yet to announce the interest rates and product fees.

TSB told The Sun it won’t take part in the government’s mortgage guarantee scheme, with its own deals available outside it.

Are the new deals any good?

The latest deals come with higher interest rates than the 5% deposit loans already available on the market.

For example, Barclays’ Springboard mortgage offers a five-year fix for a 5% deposit mortgage at a 3.45% rate with no fee.

However, it requires your family to transfer 10% of the property purchase price into a savings account as security on your mortgage.

While Family Building Society offers a 3.64% rate for a similar mortgage and a £599 fee, but it also requires your family to provide security.

In other words, if you took out a £200,000 loan over 25 years with Yorkshire Building Society at a 3.99% rate, your monthly repayments would be £1,054.

In comparison, the repayments for a Barclays customer would be £996, while a borrower with Family Building Society would repay £1,016 a month.