Building society introduces mortgage plan for novice homeowners requiring only a £5,000 down payment
Newcastle Building Society Introduces First-Time Buyer Mortgage with 2% Deposit
In a move aimed at making homeownership more accessible, Newcastle Building Society has launched a new mortgage product called "First Step." This innovative mortgage allows first-time buyers to purchase a home with a deposit as low as 2%, making it easier for those struggling to save for a large deposit.
Under this mortgage, the maximum loan available is £350,000. For example, someone looking to buy a property worth £350,000 would need to make a down payment of £70,000. This is significantly lower than the 10% or 20% deposit many lenders usually ask buyers to pay.
The Help to Buy equity loan, another government scheme, allows the government to lend up to 20% (or 40% in London) of the home's value after a 5% deposit. However, this mortgage offer from Newcastle Building Society does not require a guarantor, setting it apart from many other low deposit mortgages.
Before the 2008 financial crash, small deposit mortgage deals were popular but were phased out afterwards. Now, other lenders are offering their own versions of low deposit mortgages. For instance, Nationwide has recently launched a 95% mortgage for new build homes, and their Helping Hand scheme allows customers to borrow six times their annual income.
It's important to be aware of the potential risks associated with low deposit mortgages, such as negative equity. This is a situation where house prices fall, and you owe more than what your home is worth. This could make it very difficult, and even impossible to sell.
Other options for first-time buyers include shared ownership, where you can co-own a property with a housing association, buying a part of it and paying rent on the remaining amount. The Lifetime Isa is another government scheme that gives a bonus of up to £32,000 towards a first home.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, noted that this mortgage is one of the few that allows buyers to borrow at a high end of the loan-to-value spectrum, without needing a guarantor. Ben Smith, head of commercial and product development at Newcastle Building Society, stated that the mortgage aims to create more accessible and affordable routes into homeownership.
The mortgage guarantee scheme, opening to new 95% mortgages from April 19, 2021, is eligible for homes up to £600,000. Skipton Building Society also offers a 100% mortgage deal, but the search results do not provide information on other lenders offering similar first-time buyer loan schemes.
In conclusion, the new mortgage product "First Step" by Newcastle Building Society presents an exciting opportunity for first-time buyers who have been struggling to save for a large deposit. However, it's crucial to consider the potential risks and explore all available options before making a decision.
