Lender returning to the 5% deposit market in boost for first-time buyers

First-time buyers with just a 5% deposit will get a boost as a building society re-launches into this lending bracket.

Accord Mortgages, an intermediary arm of Yorkshire Building Society, will launch the loans from Wednesday, after all but a handful of 5% deposit deals vanished from the market in 2020 as providers became more cautious about “risker” lending.

According to financial information website Moneyfacts.co.uk, there are just five 5% deposit deals available, excluding Accord’s new offering.

This is a miniscule figure compared with the 391 options to choose from back in March 2020, before the full shock of the coronavirus crisis was felt.

The new mortgage has a five-year fixed rate of 3.99% and has a £995 fee and free standard valuation.

The move comes ahead of a new Government-backed 5% deposit mortgage guarantee scheme, which will involve high street lenders returning to this loans bracket from April.

The lender will not be using the Government’s mortgage guarantee scheme for this product, and said it is launching the five-year fixed rate mortgage exclusively to first-time buyers with a 5% deposit as part of its continued support to help people get on the property ladder.

People wanting to take it out will need to meet strict criteria.

First-time buyers will be able to borrow up to a maximum of 4.49 times their income.

The deal is not available for flats or new-build homes and the maximum loan size is £500,000.

The lender said it will monitor demand and service levels carefully and cautioned the product may be withdrawn at “relatively short notice”.

Rachel Springall, a spokeswoman at Moneyfacts.co.uk said: “It’s fantastic to see Accord launch a 95% loan-to-value mortgage onto the market which currently offers little choice for borrowers with a small deposit.

“The coronavirus pandemic hit this area of the mortgage market hard and as lenders pulled their deals it left little options for borrowers, some of which may be debating on whether to turn to the ‘bank of mum and dad’.

“It is hoped that Accord’s entry along with the announcement of Government support in this sector will help expand choice for borrowers who are not able to push their deposit to 10%.”

Jeremy Duncombe, managing director of Accord Mortgages, said: “Part of our purpose as one of the UK’s largest building societies is to help people own their own home, and the unique challenges of the last year have made that harder than ever for some.

“Increasing house prices, the need to save for a larger deposit and limited choice in the higher LTV (loan-to-value) markets, means the goal posts have continually moved for many.

“We were one of just a handful of lenders that continued to offer 90% LTV mortgages during the pandemic and have been monitoring the market closely to ensure we carefully broaden our support to those with even smaller deposits.

“We expect this new 95% mortgage will once again give first-time buyers another option to help them realise their home ownership ambitions.”