Yorkshire Building Society has become the UK's first high street lender to bring back 95% mortgages almost a year after the pandemic wiped almost every single low deposit deal from the market.
The high street lender said the deal will be offered through mortgage brokers only – with limitations in place to restrict who can sign up – including ruling out flats and new-build homes.
The 95% mortgage will be available to first-time buyers only, however, it won’t be linked to the Chancellor's mortgage guarantee scheme, which acts as a buffer for risk-averse banks.
Announcing the launch, the building society said its 95% deals would have returned even without the scheme because of rising demand from homeowners as the economy rebounds from Covid.
However, it said it would not have re-launched the product if it wasn’t for the Treasury’s promise to help buyers.
Chief executive, Mike Regnier, said: "As the only lender in this market we'd struggle to meet the demand that clearly is out there for customers that have saved for years to get a 5% deposit, and will want to take every advantage of the stamp duty land tax holiday.”
Yorkshire’s 95% deal, which will be offered through mortgage brokers, will have a rate of 3.99% fixed for five years, and comes with a £995 fee.
It will not be available on apartment and new-builds – because these are considered more vulnerable in a volatile house price market – and will also exclude furloughed workers - the two groups that are typically more likely to need a deal like a 95% mortgage.
“We’re trying to restrict, to an extent, the amount of demand that we get from it so that we can manage our service levels. We’ve done that very deliberately,” Regnier said.
Until last year, buyers struggling to raise savings could apply for a 5% deposit mortgage – allowing them to get on the property ladder with minimal savings.
Right now, there are only five 95% loan-to-value (LTV) mortgage products available compared with 391 in March 2020, according to Moneyfacts. The majority are also reserved for brokers.
But there’s hope for other buyers.
Chancellor Rishi Sunak announced a stamp duty holiday extension alongside new 95% mortgages for aspiring homeowners during his March 3 Budget.
He said buyers would get extra support in the form of a guarantee scheme that would encourage banks and building societies to re-enter the low-deposit mortgage market.
Through the scheme, the government will act as a mortgage guarantor – meaning banks will not lose out financially if a buyer is unable to fulfil their payments. It's due to launch in April.
The initiative, which can be used for both remortgaging and buying a first home, compensates the bank or building society for some of the money lost if a borrower defaults and the property is repossessed.
However, there are already reservations that it could push prices up – effectively worsening the problem for first-time buyers - the people struggling with homeownership the money.
So far, a number of mainstream lenders have committed to the scheme, including Lloyds, NatWest, Santander, Barclays and HSBC.
The scheme, which will run until 2022, will be restricted to properties worth up to £600,000.
