A game changer? Yorkshire Building Society launches 99% loan-to-value mortgage for first-time buyers

The Government may have backtracked on plans for 100% loan-to-value (LTV) mortgages but Yorkshire Building Society has come up with its own support scheme for first-time buyers.

The lender has launched a £5,000 deposit mortgage aimed exclusively at first-time buyers.

It can be used on homes worth up to £500,000, effectively providing a 99% LTV loan.

There are some restrictions though as it cant be used on flats or newbuilds, which are typically popular among first-time buyers.

Additionally, it would mean taking out a 5.99% five-year fixed rate, which may be expensive for some borrowers.

The innovation has been welcomed but commentators said there are risks to be aware of such as falling into negative equity.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: "With only five-year products available, hopefully over that period of time the value of the property will increase.

"There is no interest-only option so borrowers will be paying back a small amount of the capital as well as interest each month, improving their equity stake.

“Critics may question what will happen if the buyer loses their job and can’t afford their mortgage payments but the same rings true for renters. Not everyone can move back in with Mum and Dad."

Matt Smith, Rightmove’s mortgage expert added: "It's encouraging to see lenders continuing to try to innovate in the mortgage market, even after the government abandoned its own plans to encourage lower deposit mortgages in the Spring Budget. 

“This new product has the potential to help some first-time buyers who fit the affordability criteria, but are struggling to raise a bigger deposit. The game-changer for first-time buyers will be an innovation, or regulatory changes, that helps with the challenge of raising a deposit, and being able to borrow enough from a lender, and there should be support for lenders who are trying to break the mould to help more would-be first-time buyers onto the ladder."