Warning issued over new mortgages where first-time buyers only need £5000 deposit

The cheap mortgages might land the economy in huge trouble

The Yorkshire Building Society mortgage lets buyers borrow up to 99 per cent of their desired property's value up to £500,000, via Sky News.

Ordinarily, lenders require a 10 per cent deposit from buyers, which a big reason why so many young people struggle to buy their first home.

There are some strict constraints for buyers to be able to access the new scheme, including credit score and affordability checks. It is also not allowed to be use to purchase flats or new-build houses.

The scheme has been praised by some for allowing young people to get on the property ladder, with Yorkshire Building Society's mortgage director Ben Merritt saying it will "level playing field for those who don't have financial support from their families to fall back on."

However, there are concerns over the new scheme that it could lead to financial troubles further down the line.

“It’s a high-stakes gamble and could potentially fuel yet another house price bubble,” The Mortgage Uni's Peter Stamford told City AM.

There are fears among some brokers that 99 per cent deposits will fuel demand for houses even further, and hence increase prices, resulting in negative equity where the house becomes less valuable than the remainder of the mortgage.

Montgomery Financial founder Charles Breen said: “Rishi Sunak is clearly desperate for votes from youngsters struggling to get on the property ladder, as this kind of scheme could be a real vote winner.

“But short-term gain could result in long-term pain if borrowers slip into negative equity and at this loan to value there is definitely a chance of that.”

Stephen Perkins of Yellow Brick Mortgages echoed a similar sentiment.

“To introduce one per cent deposit mortgages, the government will either have to fund or severely guarantee lenders for the additional risk, especially in the current economic climate,” Perkins said.

“Whilst this could help remove one of the largest barriers to home-ownership and the need for family support, borrowers will still need to be able to afford and obtain a 99 per cent mortgage, which based on the huge disparity between house prices and incomes, means such a scheme would in fact only benefit a small minority.”

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