A major bank has launched a new mortgage product designed to help some first-time buyers onto the property ladder with a deposit of just 2 per cent.
The deal, from Santander UK, does however mandate a minimum £10,000 deposit. This means a 2 per cent contribution is only viable for a £500,000 home.
Santander UK said its "my first mortgage" deal features a fixed rate of 5.19 per cent over five years and has no product fee.
The product, at up to 98 per cent loan-to-value (LTV), is available for maximum lending up to £500,000, repayable over a term of between five and 40 years.
Santander confirmed the deal is not open to self-employed applicants and covers only those living in Britain, with Northern Ireland excluded.
Lending above 95 per cent and up to 98 per cent LTV is restricted to existing houses only, Santander said. A minimum of £190,001 must be borrowed, and a £250 cashback is provided upon completion.
All lending also remains subject to Santander’s broader affordability checks, including a maximum loan-to-income multiple of 4.45 times salary.
Customers looking to purchase a new build home can still access borrowing from Santander up to a maximum 95 per cent LTV.
David Morris, head of homes for Santander UK said that saving for a deposit “remains one of the biggest hurdles to homeownership”.
He said: “Last year, the average first-time buyer with Santander put down a deposit of more than £85,000, a figure that can feel unattainable for today’s aspiring homeowners, whether that’s a result of more modest income, limited family financial support, rising rental costs, and in some cases childcare expenses.”
Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said borrowers should seek advice as a first step.
She said: “Borrowers may need help to find a deal with a more enhanced loan-to-income ratio, like Nationwide who can offer six times someone’s income.
“Outside of a big high street bank, it is worth noting that building societies have been working hard to support new buyers, leading the charge to provide more innovative products.
“These include the ‘track record mortgage’ from Skipton Building Society, the ‘helping hand’ offer from Nationwide and the ‘rent to own’ mortgage from Hanley Building Society.
“Innovation is set to become a key talking point this year, as expanding options for first-time buyers and modernising regulation are some of the key themes to be reviewed by the Financial Conduct Authority.”
Ms Springall added: “The Government has been very vocal that it wants lenders to do more to support buyers to boost UK growth.”
She added that progress is needed to address a lack of affordable housing.
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