The Yorkshire Building Society has launched 90% mortgages, aimed at first-time buyers and existing homeowners who have been squeezed by the mortgage crunch. It allows buyers to borrow on pre-owned flats and houses, but not new build properties.
This move from one of Britain’s biggest building societies will be a ray of hope for borrowers, who have seen nine in ten of the 10 per cent deposit mortgages that were available in March, be wiped off the market.
There are now just 78 deals from a handful of lenders that offer 10 per cent deposit mortgages, as many banks and building societies slashed high loan-to-value mortgages after the Covid-19 pandemic hit.
However, with a 3.69 per cent two-year fixed rate, and 3.79 per cent five-year fixed rate, the Yorkshire Building Society’s deal will cost borrowers considerably more than what’s on offer to those with bigger deposits.
Comparatively, those buying with 40 per cent deposits are eligible for two-year fixed rates below 1.3 per cent, and five-year fixes below 1.5 per cent.
David Hannah, Principal Consultant and Founder of stamp duty advisory practice Cornerstone Tax, comments on how the government can help first-time buyers get on to the property ladder:
“First-time buyers are in a tougher position than ever, as low-deposit mortgages were effectively wiped out by the pandemic, and its resulting lockdowns. Many banks and building societies are concerned about job losses that could see borrowers struggle to pay their mortgage, as well as negative equity if house prices fall.
“The government needs to do more to help get people on to the property ladder – government-backed purchase mortgage guarantees for borrowers would be a great way to reinstall confidence in the lending market.
“If the term of these guarantees were for five years, for example, the inflation of the housing market during the medium term would wipe off any negative equity on those properties. This would give the market some security again, help buyers, and get the market moving again.
“Other stimuli such as an extension of Help to Buy would almost certainly help, but reinstating 95% mortgages is almost essential in helping turn renters into buyers. Guaranteeing their borrowing for the mid-term will give lenders the confidence to bring these products back and restart the market.”