Big change to £5k deposit mortgage scheme offered by Yorkshire Building Society means thousands more can get it

A MAJOR building society has expanded its 99% mortgage scheme to allow first-time buyers to purchase flats. Yorkshire Building Society launched its £5k Deposit Mortgage last year, which allows borrowers to buy a property worth up to £500,000 with a deposit of just £5,000. First-time buyers were not initially allowed to use to scheme to buy flats, but it has now been expanded its eligibility to include these types of properties.

The mortgage lender said the expansion follows feedback from brokers and customers, and all other terms and conditions of the scheme remain unchanged. The product is available directly from Yorkshire Building Society and through Accord Mortgages for buyers across England, Scotland and Wales. The mortgage is not available for new-build properties and the loans are subject to rigorous credit scoring and affordability checks.

The maximum age a borrower can be by the end of the mortgage term is 70. For someone buying a typical first-time buyer property at £200,000, a £5,000 deposit would equate to 2.5% of the purchase price. This means that the remaining 97.5% would need to be borrowed as a mortgage. Yorkshire Building Society initially launched its scheme after research found that raising the typical 10% deposit on a first-buyer home was the biggest barrier to home ownership.

The research also indicated that around two in five (38%) first-time buyers receive financial help from friends and family to get onto the housing ladder. The mortgage product has seen strong demand since it was launched and hundreds of first-time buyers have benefited from it. Ben Merritt, director of mortgages for the Building Society, said: "We're absolutely delighted with the impact this product has had – our teams have been overwhelmed by the very human stories illustrating the difference it has made to people's life plans.

"Expanding its reach to include flat purchases is the natural next step and we're really pleased to be able to respond to feedback by offering this additional opportunity for would-be first-time buyers to benefit. "Our analysis suggests this change will particularly benefit people in city centre locations in areas like London, the South East and parts of Scotland, where property prices tend to be higher and flats are therefore a popular choice.".

David Hollingworth, associate director of communications at L&C Mortgages, said the scheme could be a welcome boost for those struggling to raise an adequate deposit. "This could really help speed up the chance to buy and opening it to flats will help expand its reach," he told The Sun. Nicholas Mendes, mortgage technical manager at John Charcol, added that the scheme would most likely benefit higher earners with good credit histories who haven’t been able to build up a deposit because of the cost of living.

"That said, it's always worth looking at other options in the market," he said. "Products like Skipton's Track Record Mortgage, Barclays' Springboard, and the Own New proposition also support first-time buyers, often with different criteria that might suit individual circumstances.". It's worth noting that if you're getting a higher loan-to-value mortgage, it could be a good idea to overpay your mortgage wherever possible.

Your loan to value ratio is the amount you borrow compared to the amount you put down as deposit as a percentage of the property price. You should speak to your lender and seek advice if you have any concerns about falling into negative equity with a high loan-to-value deal. Negative equity is when you owe more money on your mortgage than the value of the property. This could leave you out of pocket and also make it difficult to sell or remortgage your home.

If you have a low deposit mortgage and house prices fall, it could result in you being unable to sell or get a new loan. This might mean you get stuck on an expensive mortgage once your fixed-rate deal expires. IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time. There are several ways to land the best deal. Usually the larger the deposit you have the lower the rate you can get.

If you're remortgaging and your loan-to-value ratio (LTV) has changed, you'll get access to better rates than before. Your LTV will go down if your outstanding mortgage is lower and/or your home's value is higher. A change to your credit score or a better salary could also help you access better rates. And if you're nearing the end of a fixed deal soon it's worth looking for new deals now. You can lock in current deals sometimes up to six months before your current deal ends.

Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost. But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal - but compare the costs first. To find the best deal use a mortgage comparison tool to see what's available. You can also go to a mortgage broker who can compare a much larger range of deals for you.