Mortgage experts unsure about YBS’s 99% LTV mortgage

Mojo Mortgages and Uswitch have expressed caution about Yorkshire Building Society’s new mortgage product for buyers with a £5,000 deposit.

The product can be used to buy a property worth up to £500,000, meaning it can be used at 99% loan-to-value, though it cannot be used on flats or new builds.

Claire Flynn, a spokesperson for Mojo Mortgages said, “The introduction of 1% mortgages might initially seem like a positive move, offering a pathway for more first-time buyers to step onto the property ladder with a smaller deposit.

“However, while the mortgages may indeed assist first-time buyers in joining the property ladder due to a much smaller deposit requirement, it’s predicted that this sudden surge in demand could drive up house prices overall.

“Historically, government initiatives such as Help to Buy and Stamp Duty Holidays were created to support buyers, however, they inadvertently fuelled a staggering rise in house prices. 10 years ago, the average house price sat at £188,265, however, today, it’s around £281,913, a substantial increase of £93,648. Therefore, another potential spike in house prices raises concerns.”

Kellie Steed, a mortgage expert at Uswitch, said: “There are potential pitfalls that the mortgage borrower would need to consider before pursuing a 1% mortgage.

“Firstly, borrowers securing a 1% mortgage could find themselves burdened with higher mortgage payments due to both the larger loan size and higher interest rates. Mortgage lenders typically view 99% loan-to-value (LTV) mortgages as particularly high-risk lending, so the rates available are considerably higher than they would be for lower LTV borrowing.

“Furthermore, 1% mortgages present a higher risk of the mortgage borrower falling into negative equity. If house prices decline suddenly after taking out the mortgage, the borrower will hold minimal equity due to paying such a low deposit. This can result in them owing more than the value of their home – or negative equity. This can then be problematic if they want to move or remortgage.

“So whilst 1% mortgages may appear attractive to first-time buyers who are struggling to save a substantial deposit, it’s important that they consider the risks involved. It’s more cost-efficient and less risky to save as high of a deposit as you can afford. This will reduce your loan-to-value ratio, which should provide access to lower mortgage rates, and less potential for negative equity.”