First-time buyers are being offered the chance to borrow up to 98% of the price of a property – but they cannot get help with their deposit from the bank of mum and dad.
Newcastle building society’s First Step mortgage is designed to help those who have been saving to get on the housing ladder.
Last year, more than half (52%) of first-time buyers had assistance from their parents when buying a home, according to analysis by the property firm Savills.
The First Step mortgage, which has an interest rate of 5.25%, fixed for five years, is designed for those who need to go it alone and is one of a handful offering lending above 95% of a property’s cost.
For borrowers who can raise a bigger deposit, the financial data firm Moneyfacts said the choice of deals at 90% and 95% loan to value (LTV) was at a 17-year high. A larger deposit will typically secure a better rate. At 95% Marsden Building Society offers a five-year fixed rate at 4.69% with an arrangement fee of £998, or 4.79% with no fee.
First Step borrowers can apply for a mortgage between £96,000 and £350,000, and must put down at least £5,000, or 2% of the property’s price, whichever is higher. On purchases above £250,000 that means a deposit of more than £5,000. Borrowers will need to declare the source of the deposit when they apply.
Newcastle said the deal was part of a move across the market to make it easier for first-time buyers to access bigger loans to get their foot on to the property ladder, and just one of its deals for would-be homeowners.
Ben Smith, the building society’s head of commercial and product development, said: “We’re committed to helping first-time buyers whatever their background, and our mortgages support a range of people and their circumstances, including those with gifted deposits.
“First Step has been designed for homebuyers in particular who have worked hard to save a deposit by themselves, and are ready to get on the property ladder.”
David Hollingworth from the brokers L&C Mortgages said the loan would help buyers who feared prices would continue to climb quicker than they could save.
“It’s a great option for those that can show they’re able to afford the mortgage but are struggling with the demands of saving enough for a deposit while meeting steep rent and other costs of living,” Hollingworth said.
“If parents want to help out then they may still be able to assist by covering some of the ancillary costs that buyers face, such as survey and legal fees.”
Many low-deposit mortgages require a guarantor or a relative to lock away money in a linked savings account, although Skipton Building Society offers a deal in which buyers can access a 100% loan if they have proof they have a good track record of paying rent.
“Not everyone can be reliant on the bank of mum and dad to get a foot on to the property ladder. This is why it’s so fundamental for lenders to support buyers with small deposits, to keep the market moving,” said Rachel Springall from Moneyfacts.
Springall added a note of caution for buyers thinking of taking on mortgages that make up a big part of their purchase price.
“Those borrowing at the higher ends of the loan-to-value spectrum will have little equity in their homes as a result, and disaster could strike if house prices were to plummet,” she said. “Seeking advice before entering any arrangement is vital.”
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