Earlier this year Yorkshire Building Society launched its 99% mortgage. Yes, you heard it correctly, 99% loan-to-value.
This means you’ll need only a 1% deposit or a minimum of £5,000.
Since the financial crisis in 2008 such low deposit deals have been virtually unheard of, unless you count family support products such as Barclay’s Springboard, or deals such as Skipton Building Society’s Track Record mortgage for reliable renters.
But is it too good to be true? What’s the devil in the detail?
We asked Pete Mugleston, MD and mortgage expert, at Online Mortgage Advisor, for the lowdown and his verdict.
What is a 99% mortgage?
Very simply a 99% mortgage is a loan for 99% of the value of the property you wish to purchase.
Yorkshire Building Society’s product is for first-time buyers who have at least £5,000 deposit to put down on a property up to the value of £500,000.
The product comes with no fee and the interest rate of 5.99% is fixed for five years.
Mugleston said the introduction of this mortgage back in March was a ‘bold move’ by Yorkshire Building Society aimed at making homeownership more accessible.
“This new initiative,” he explained, “is designed to encourage banks to offer mortgages covering 99% of a property’s value in hopes of making it easier for people to take their first steps on the property ladder, reducing the size of the required deposit.”
Where to get a 99% mortgage
Currently, the only place to get a 99% mortgage is via the Yorkshire Building Society.
This deal is available to existing customers who meet specific criteria and new applicants who have previously demonstrated strong financial stability.
The good news is Mugleston thinks similar schemes will be rolled out by banks and building societies across the UK in the near future.
Is the 99% mortgage the same as the mortgage guarantee scheme?
The Mortgage Guarantee Scheme was created by the government in 2021 to encourage lenders to provide more 95% LTV mortgages. The idea is the government backs the loan to make the product less risky for lenders.
Under the scheme, which runs until June 2025, borrowers can take out a mortgage between 91% and 95% LTV and therefore need a minimum of a 5% deposit. This is subject to the usual affordability checks. Several of the big lenders are taking part in the scheme.
Yorkshire’s product differs mainly due to the size of the loan.
Mugleston said: “The 99% mortgage covers almost the entire value of the home, with only a 1% deposit required whereas the mortgage guarantee scheme can cover up to 95% of the mortgage, requiring a minimum deposit of 5%.”
Are 99% mortgages right for you?
Whilst 99% mortgages may sound like a dream come true for those struggling to build a deposit – it’s important to be aware of the pitfalls.
Mugleston said: “This new scheme is ideal for individuals who have reliable income streams and good credit histories but have found saving for a large deposit challenging.
“However, prospective homebuyers need to be aware of the risks associated with this scheme.
“The biggest drawback is that homeowners will face higher monthly payments compared to a typical mortgage because they are borrowing a larger sum of money.
“It’s important that buyers who choose to purchase a home with a 99% mortgage can comfortably afford these repayments over a longer term, even if interest rates remain high.
There also is the potential for the house to fall into negative equity. If the property value declines homeowners might owe more on their mortgage than the property’s current value.
“This situation can make it difficult to refinance or sell the property without incurring a loss down the line,” Mugleston warned.
What are the alternatives?
The main competitor to Yorkshire’s 99% deal is Skipton Building Society’s Track Record mortgage which is a zero deposit deal. It’s aimed at renters who have a strong history of rental payments. It has robust affordability checks so eligibility is in no way guaranteed but it certainly offers potential for first-time buyers who don’t have the backing of the Bank of Mum and Dad.
On which subject, family support mortgages are also an option for first-time buyers with no deposit. They rely on family members depositing a sum of money into a savings account with the lender to cover any potential risk. Several of the main lenders offer family support mortgages and you can find out more about them in this article.
Don’t forget to look at Shared Ownership, which allows buyers to purchase a proportion of a property and rent the rest, as well as guarantor mortgages and the Deposit Unlock scheme. They are also covered the article we’ve linked to above.
How to find out more about 99% mortgages
If you are unsure which mortgage scheme is right for you, it is always wise to consult a mortgage expert who can help you find the best deal for your current situation, said Mugleston.
A broker or adviser will be able to advise you on the best mortgage for you – whether that’s the 99% deal or others which are more suitable.
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