The new 99% LTV mortgage offering by Yorkshire Building Society, requiring only a £5,000 deposit, has led to scepticism from experts at Mojo Mortgages and uSwitch.
This mortgage option allows the purchase of homes up to £500,000 with a 99% loan-to-value ratio. However, the product is not applicable to flats or newly constructed homes.
Mojo Mortgages’ Claire Flynn noted that while a 99% LTV mortgage might look like a helpful option for first-time buyers to afford homes, it may also contribute to overall housing price increases.
Flynn points out that similar government schemes made to assist homebuyers in the past have unexpectedly caused significant housing price hikes. The average housing price has gone up by £93,648 in the last decade. Consequently, an increase in prices from this new 99% LTV mortgage product could be worrisome.
uSwitch’s mortgage specialist, Kellie Steed, cautioned that there are downsides to consider with a 1% deposit mortgage. High-risk views on 99% LTV borrowing can lead to larger loans and increased interest rates for the borrower.
Steed also warned of the danger of negative equity, where a sudden drop in house prices can leave homeowners owing more than the property’s worth, especially problematic if they wish to sell their homes or remortgage.
Therefore, while a 1% mortgage may seem appealing to first-time buyers challenged with gathering a significant deposit, Steed advises that it’s safer and more cost-effective to save for a larger deposit. A bigger deposit can reduce the LTV ratio, securing lower interest rates and minimizing the risk of negative equity.