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.”
House prices are just 3% below the all-time highs recorded in the summer of 2022 after they rose for first time in over a year during February, data from Nationwide has revealed.
UK house prices rose 0.7% month on month during February taking the annual rate of house price growth to 1.2% from -0.2% the previous month.
Robert Gardner, Nationwide‘s Chief Economist, says: “The decline in borrowing costs around the turn of the year appears to have prompted an uptick in the housing market.
Robert Gardner, Nationwide
“Indeed, industry data sources point to a noticeable increase in mortgage applications at the start of the year, while surveyors also reported a rise in new buyer enquiries.”
But he warns: “Near-term prospects remain highly uncertain, in part due to ongoing uncertainty about the future path of interest rates. After falling sharply in late December, swap rates, which underpin fixed rate mortgage pricing, have drifted back up.
“Borrowing costs remain well below the highs recorded last summer but, if the recent upward trend is sustained, it threatens to restrain the pace of any housing market recovery.”
Nevertheless agents welcomed the news.
Iain McKenzie, The Guild of Property Professionals
Iain McKenzie, Chief Executive of The Guild of Property Professionals, says: “We’re expecting to see the house market back on the march this year, and a return to positive annual price growth is another good sign.
“Growth will be welcomed by sellers that have been cautious to stick out the ‘for sale’ signs since prices began to ease.”
And he adds: “This resurgence in activity is a promising sign that should bring more buyers out of hiding and encourage growth in the sector. We are already seeing this play out, with HMRC also recording an uptick in sales at the start of the year.”
Matt Thompson, Chestertons’ Head of Sales, says: “Buyers have become increasingly confident since the end of last year when interest rates were held at 5.25% and mortgage rates started to come down.
Matt Thompson, Chestertons
“This sentiment carried through to January and February 2024. Meanwhile, sellers have also been feeling more optimistic about attracting the right buyer for their home which has led to a slight increase in the number of properties being put up for sale.”
Tom Bill, Head of UK residential research at Knight Frank, adds: “Buyers feel confident that the only way for the base rate is down, which has seen demand and house prices pick up in recent months.
Tom Bill, Knight Frank
“The upwards pressure on mortgage rates in recent weeks shows sellers the importance of getting the asking price right.
“Banks are keen to lend and should eventually lower rates this year as inflation comes under control, which we believe will sustain positive annual growth in 2024 and see UK house prices increase by 3%.”
Amy Reynolds, Head of Sales at Richmond-based Antony Roberts, adds: “In line with the bustling activity we are seeing on the ground, Nationwide’s latest house price index underscores the upwards trajectory in property prices.
“It is an opportune time for buyers and sellers to seize the moment. We’ve seen an uptick in applicants with sizeable budgets seeking to upsize to their forever homes, as well as first-time buyers and second steppers wanting flats with outside space.”
Jeremy Leaf
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “In our offices, more valuations, listings and viewings combined with fewer fall-throughs than this time last year are feeding through to agreed sales, mortgage approvals and exchanges.”
But he cautions: “While Nationwide reports another rise in prices, the market does remain price sensitive. Only competitively-priced properties are attracting attention. Sellers must price realistically or offers won’t be forthcoming and market improvement may not be sustained.”
Nathan Emerson, Propertymark
And Nathan Emerson, Chief Executive of Propertymark, says: “The housing market always reacts to changing economic trends, so it is encouraging to witness many homeowners seeing both a month on month and year on year uplift on the price of their homes.
“This should help provide people with the confidence to potentially sell where they may have been holding back. The UK Government need to build on this as a chance to prove that the economy is heading in the right direction.”
Mortgage brokers welcomed the news too.
Mark Harris, SPF Private Clients
Mark Harris, Chief Executive of SPF Private Clients, says: “With a growing feeling that base rate has peaked, and the next move in rates will be downwards, this is supporting buyer and seller confidence and boosting activity in the market.
“Mortgage rates are more attractively-priced than they were several months ago, even if the ‘best buy’ deals have been pulled recently.
“There will be ups and downs in mortgage pricing in the weeks and months ahead but there is a growing feeling of optimism that the situation is improving, which will be welcomed by hard-pressed borrowers.”
Riz Malik, R3 Mortgages
And Riz Malik, Founder & Director at Southend-on-Sea-based R3 Mortgages, told Newspage: “The UK housing market is poised in the starting blocks waiting for the starter pistol.
“This could either be an announcement in the upcoming Budget or the first cut in the base rate.
“That first cut in the base rate, when it comes, will see the property market spring out of the blocks.”
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