In an increasingly expensive UK housing market, the thought of purchasing a home with just a £5,000 deposit seems far-fetched. However, with the recent re-introduction of 99% loan-to-value mortgages by lenders such as Accord Mortgages and Yorkshire Building Society, this idea is no longer a dream but a real opportunity for first-time buyers who have found themselves stuck in the “rental trap”.
What is a 99% Mortgage?
A 99% mortgage allows buyers to borrow 99% of the property's value, meaning they only need to contribute 1% of the purchase price as their deposit. However, lenders such as Yorkshire Building Society have also set £5,000 as a minimum deposit requirement for the 99% mortgage product. This means that, in practice, for properties priced below £500,000, the mortgage percentage would in fact be less than 99%. These mortgage deals are specifically aimed at first-time buyers, who struggle to save the larger deposits that are required traditionally (often between 5% and 15%).
With the average house price continuing to rise, saving even a 5% deposit can be a significant barrier to homeownership. The 99% mortgage aims to bridge that gap by making it easier for buyers to get on the property ladder with a smaller upfront cost. While the 99% mortgage offers greater accessibility, it also places greater responsibility on lenders to assess that borrowers can genuinely afford their mortgage payments. As such, these mortgages come with stringent eligibility checks and are usually available only to those with stable incomes and strong credit histories.
Lenders Offering 99 Percent Mortgages
The main lenders currently offering this product are:
- Yorkshire Building Society, through their £5,000 deposit mortgage programme
- Accord Mortgages (a subsidiary of Yorkshire Building Society), with similar terms
Yorkshire Building Society and Accord Mortgages 5K Deposit Mortgage
The Yorkshire Building Society’s £5k deposit mortgage is designed to help first-time buyers purchase a home with just a £5,000 deposit, offering a solution for those struggling to save a traditional house deposit. Accord Mortgages is offering the same deal through their own platform. A typical 99% mortgage would calculate the deposit as 1% of the property value, but this product requires a minimum deposit of £5,000, which can be more than 1% for lower-value properties.
- Available only to first-time buyers
- Minimum mortgage deposit of £5,000
- Maximum property value of £500,000
- Maximum loan to value of 99%
- Maximum term of 40 years
- Five-year fixed rate at 5.99%
- Not available for new build flats or new build houses
Who Are 99% Mortgages For?
99% mortgages like the Yorkshire Building mortgage are aimed at first-time buyers who cannot rely on financial help from family or do not have access to large savings. They are especially appealing to young renters with steady, reliable incomes but limited ability to save substantial amounts due to high living costs. Many in the UK struggle to build up a sizeable deposit for a house purchase while managing expensive monthly rent payments. It is also important to note that these mortgages are not designed for buy-to-let investors or applicants with a poor credit history, as lenders require strong financial credentials and clear repayment ability to mitigate the higher lending risk.
Eligibility Criteria
Generally, to qualify for a 99% mortgage, you will need:
- A good credit score with no recent adverse credit history: Lenders need to be confident in your ability to manage debt responsibly, especially given the high loan-to-value ratio involved. A clean credit file improves your chances of approval and may help secure better interest rates.
- Proof of stable income (via payslips or tax returns): This demonstrates your financial reliability and ability to make regular mortgage repayments. Most lenders require at least 6-12 months of consistent income history.
- Affordability checks to ensure you can keep up with repayments: These checks consider your income, existing debts and monthly expenses to assess your payment capacity. Lenders also factor in potential interest rate increases to test your long-term affordability.
- To be a first-time buyer (no property ownership in your name): 99% mortgages are intended to help new buyers enter the property market. If you currently own or have previously owned property, you will not be eligible for this mortgage.
What Are the Benefits?
There are several advantages to taking out a 99% mortgage:
1. Lower entry barrier: The obvious benefit is the significantly reduced mortgage deposit requirement. Saving £5,000 is far more achievable for many than £25,000 or more. This makes homeownership a realistic option for individuals who may otherwise be locked out of the market due to high upfront costs.
2. Accelerated path to homeownership: It enables renters to transition into homeownership more quickly without waiting for years to build a large deposit. This can be especially valuable in areas where property prices are rising rapidly, allowing buyers to get in sooner and begin building equity.
3. Increased accessibility: It helps level the playing field, allowing people without family financial support or excess savings to get on the ladder. By removing the reliance on large deposit gifts, it offers a fairer opportunity for those from more modest financial backgrounds to own a home.
Important Downsides and Considerations
However, there are some potential drawbacks and risks involved:
1. Higher interest rates: Lenders may charge higher rates on 99% mortgages, like the Yorkshire Building mortgage, to offset the increased risk.
2. Negative equity risk: With 1% equity, even a small drop in property values can push you into negative equity, owing more than your home is worth.
3. Limited availability: Few lenders currently offer this product, reducing your choice of interest rates and terms. As a result, borrowers may have less flexibility when comparing deals or switching products in the future.
Helpful Tips for Mortgage Applicants
- Check your credit report before applying: This allows you to identify and resolve any issues that might negatively affect your application. A strong credit history can improve your chances of approval and help secure better interest rates.
- Use a mortgage affordability calculator to estimate monthly payments: This will give you a realistic idea of what you can comfortably afford based on your income and outgoings. It also helps you avoid overcommitting to a loan that may strain your finances.
- Speak to a mortgage advisor who can assess whether a 99% mortgage suits you: An advisor can compare available deals and guide you through the application process. They may also have access to exclusive offers not available directly to consumers.
- Don’t stretch your budget: Just because you can borrow 99% does not mean you should buy at the top end of your budget. Buying slightly below your maximum affordability can give you a financial buffer for unexpected costs. It also helps reduce the risk of falling into financial difficulty if your circumstances change.
Conclusion
Buying a home with just a £5,000 deposit is possible thanks to the 99 percent mortgage products from lenders such as Yorkshire Building Society. While the dream of homeownership is more achievable than ever for many first-time buyers, it is essential to understand the risks, especially around interest rates and negative equity. If you are considering this route, do your research, consult a professional and make sure you are fully prepared for the commitment ahead.
FAQs
Q. Can I get a 99% mortgage with bad credit?
A. Most lenders require a clean credit history. A poor credit score will probably disqualify you from a 99% mortgage deal, as lenders see it as a higher lending risk given the minimal deposit involved.
Q. Are 99% mortgages only for first-time buyers?
A. Currently, yes. Deals such as the Yorkshire Building mortgage are specifically marketed as being for first-time buyers only, meaning you must not have previously owned a property.
Q. What happens if house prices fall?
A. If the value of your home falls, you could find yourself in negative equity territory quite quickly.
Q. Is a £5,000 deposit always enough for a 99% mortgage?
A. Lenders such as Yorkshire Building Society demand a minimum deposit of £5,000 for a 99% mortgage. This means that, a £5,000 deposit is only enough where the value of the property does not exceed £500,000, and where the value of the property is below £500,000, the mortgage percentage will be lower than 99%.
Q. What are the alternatives to a 99% mortgage?
A. Options include 95% mortgages, Shared Ownership, or guarantor mortgages. These alternatives may mean wider lender availability and lower risk, depending on your financial circumstances.
Additional Sources
https://www.tembomoney.com/learn/99-per-cent-mortgages-spring-budget
https://www.coreco.co.uk/montys-mortgage-blog/the-99-percent-mortgage-is-here/
https://www.zoopla.co.uk/discover/buying/99-mortgages-everything-you-need-to-know/
https://shawfinancialservices.co.uk/99-percent-mortgages-for-first-time-buyers/
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