Seven first-time buyer schemes where you only need a deposit of 1% or less as new mortgage launches
FIRST-TIME buyers need to save over £25,000 to secure a typical mortgage – but there’s help available for deposits.
It now costs an average of £282,000 to get on the property ladder, according to the latest data from the Office for National Statistics (ONS).
In the 12 months to January 2024, average house prices decreased in England to £299,000 (down by 1.5%), decreased in Wales to £213,000 (falling by 0.8%), and increased in Scotland to £190,000 (up by 4.8%).
But while house prices have taken a slow tumble in recent months, buying still means years of saving for most would-be homeowners.
Record high rents and the rising cost of living have made it even harder to save enough to buy a first home.
And with the average two-year mortgage rate now over 5.23%, for many the dream of homeownership has been fading fast.
But it is possible to make your hard-earned cash go further and secure a mortgage you can afford to repay.
Just this week, Yorkshire Building Society launched a 99% mortgage to help first-time buyers get on the housing ladder with just a £5,000 deposit.
However, other buyers might even be able to bag a 100% mortgage from selected lenders if they meet the relevant criteria.
Here’s the full list of what’s available.
THE 100% MORTGAGE
It’s normal to expect to save a deposit that’s between 5% and 10% of the property’s price.
But for many first-time buyers it’s too big a sum to be realistic.
That’s why several of the big banks and building societies allow first-time buyers to borrow the full amount it costs to buy their home.
These deals are often referred to as 100% loan-to-value mortgages – because you don’t need any deposit to buy.
But in almost all cases, a family member will need to help out in some way.
Some deals need parents to agree to guarantee repayments, meaning the lender will need to check their income to make sure they can afford to.
The guarantee only kicks in if you can’t make a payment for any reason.
There are also a number of 100% family mortgages – some require a family member or close friend to deposit some savings with the lender for a fixed period.
Others will lend you 100% of the home’s purchase price but will want to take a “charge” on a family member’s home in place of a deposit.
This means that no cash changes hands, but should things go wrong, the lender will be able to get their money back from your relative.
Before that happens, your home would be sold and any money you still owed the lender would be taken from your family member’s home.
Either they would have to borrow money to pay back the lender, or they would, in the worst-case scenario, have to sell to cover any remaining debt.
There is a very serious warning that comes with taking a 100% mortgage.
If house prices fall, you could end up owing the bank more than your home is worth.
That only matters if you need to sell, or when you need to remortgage to a different lender.
But it can cause a major headache.
100% MORTGAGE FOR RENTERS
This is the newest type of mortgage that lets you borrow without a cash deposit.
Last year, Skipton Building Society launched its Track Record 100% mortgage available to renters who were buying their first-ever property.
The only catch is that the amount you can borrow is capped as your monthly repayment cannot be more than you currently pay in rent.
Earlier this week the lender confirmed that renters who owned a property more than three years ago can also apply for the deal.
To qualify, you need to show a strong track record of paying your rent on time and in full.
The five-year fixed rate mortgage is currently 5.45% and can be taken over a maximum term of 35 years.
Speak to an independent mortgage adviser if you want to apply.
To find out more visit www.skipton.co.uk/mortgages/track-record-mortgage.
100% MORTGAGE FOR STUDENTS
Loughborough Building Society offers a Buy for Uni mortgage that lets students over 18 buy their first home with the help of a parent, step-parent or grandparent.
The mortgage can be up to 100% of the property’s purchase price and the monthly repayments must be covered by renting out the spare rooms to students.
If you want to borrow more than 80% your relative must deposit cash savings with the society that make up the remaining 20% of the purchase price.
They also have the option of allowing Loughborough BS to put a second mortgage charge on their home equal to that amount – or doing a combination of the two.
Speak to your mortgage broker if you want to apply.
To find out more visit www.theloughborough.co.uk/mortgages/family-assist/buy-for-uni.
100% MORTGAGE FOR FAMILIES
Several lenders offer a version of this 100% mortgage.
Barclays was the first lender to allow to first-time buyers to borrow 100%, through its Family Springboard mortgage.
This allows borrowers to buy with no deposit on the condition that a family member or loved one puts 10% of the purchase price into a five-year Helpful Start savings account with the bank.
So long as you keep up with the mortgage payments for five years, they’ll be able to access and withdraw their cash after that.
To find out more visit www.barclays.co.uk/mortgages/family-springboard-mortgage.
Halifax, Lloyds Bank and Mansfield Building Society all offer similar style family mortgages.
SMALL DEPOSIT MORTGAGES
A much wider range of building societies, including Newcastle and Yorkshire, allow more than one borrower to be on the mortgage.
This is known as a joint borrower, sole proprietor mortgage and means a parent or loved one can boost your borrowing potential using some of their income.
Newcastle Building Society, Skipton and Saffron all offer this type of mortgage up to 95% loan-to-value.
You’ll have to have a 5% deposit in savings and apply through a mortgage broker.
Some other lender charge a 1% deposit.
99% MORTGAGES
Yorkshire Building Society launched a 99% mortgage this week to help first-time buyers get on the housing ladder.
The deal enables budding homeowners to get on the property ladder with a £5,000 deposit.
The new deal offered by the Yorkshire Building Society will enable buyers across England, Scotland or Wales, to purchase a property valued up to £500,000 with a deposit of just £5,000.
The new mortgage is available directly to customers and via brokers through Accord Mortgages – the lenders’ intermediary-only arm.
The mortgage is not available for new-build properties or flats and the loans are subject to rigorous credit scoring and affordability checks.
Find out more by visiting www.ybs.co.uk/mortgages/5k-deposit-mortgage.
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
What other help for first-time buyers is available?
1% Mortgage Rate Scheme
Own New’s Rate Reducer mortgage offers buyers of new builds a mortgage rate reduction when they purchase a home from several major housebuilders.
These include Barratt Homes, Barratt London, David Wilson Homes, Persimmon, Taylor Wimpey, Bellway and Berkeley Homes
The scheme, which launched in February 2024, allows home buyers access to rock-bottom mortgage rates during their mortgage’s initial term.
When you choose your property, the developer will agree to contribute 3% or 5% of the purchase price.
The mortgage provider will then take the developer’s contribution of 3% or 5% and offset it against the mortgage interest to reduce your monthly payments for the first two or five years, depending on the length of your initial term.
In Spring 2024, Barratts Homes says sub 1.89% mortgage rates are available via the Own New Rate Reducer scheme, assuming a 5% homebuilder incentive, with a 2 year initial period and an LTV of 75%.
By comparison, on the open market, in Spring 2024 the best two year fix at 75% LTV is 4.42%.
So if you take out a £180,000 mortgage over 25 years at 1.89% via the Rate Reducer scheme, your mortgage payments for the first two years would be £754 a month.
This is £238 a month less than if you were to take out the best two-year fixed rate charging 4.42% interest – leaving you with £2,856 annual savings.
First Homes Scheme
The First Homes scheme launched in 2021 and allows first-time buyers in England to buy homes at a 30% and 50% discount to market price.
The discount stays with the property, so is made available to any future buyer too.
To use the scheme you must be a first-time buyer and be aged 18 or older.
Right to Buy
The Right to Buy scheme lets council house tenants buy the property they rent at a discount of up to 70%.
You get a 35% discount on your council home if you’ve been a public sector tenant for between three to five years.
After five years, the discount increases by 1% for each extra year you’ve been a public sector tenant.
The maximum it can increase to is 70%, or £87,200 across England and £116,200 in London boroughs.
Right to Acquire
The Right to Acquire is similar to Right to Buy but allows people renting from a housing association or other public sector landlord to buy their home.
It’s open to anyone renting in the public sector for three years or longer and offers a discount between £9,000 and £16,000 on the purchase price.
How much you get off will depend on the location of the property.
Shared Ownership
The shared ownership scheme allows first-time buyers to put down a 5% deposit to buy as little as a tenth of a home.
The maximum share you can buy is 75% but as you can afford it, the scheme allows you to buy larger shares in the future.
You must be able to afford a mortgage for 95% of the value of your share in the property plus monthly rent to the local council or housing association.
Deposit Unlock
Newcastle Building Society, Nationwide and Accord Mortgages offer a private scheme called Deposit Unlock.
You can buy a new-build home from a registered developer with a 5% deposit.
You’ll have to go through a mortgage broker to access it.
You can find the full list and details of all the first-time buyer help in our guide.