Yorkshire Building Society last week (17 March) became the first major lender to relaunch 95% mortgages for first-time buyers. Low-deposit mortgages disappeared almost entirely last spring due to the pandemic, but there are signs that 2021 could be a much better year for first-time buyers. The launch comes two weeks before the start of the government’s new mortgage guarantee scheme, which will see some of the country’s biggest lenders offer 95% mortgages once again. Yorkshire’s deal is priced at 3.99% and comes with a £995 fee. It’s not available on flats or new-build houses, or to people currently furloughed. First-time buyers will be able to borrow a maximum of 4.49 times their annual income. The building society says the strict criteria is designed to manage demand and has warned that the deal could be withdrawn if it struggles to cope with applications. Yorkshire Building Society’s new deal is important because it should kick-start a flurry of low-deposit mortgages coming back to the market. This scheme will see the government take on some of the financial risk of high loan-to-value mortgages, giving lenders the confidence to relaunch their 95% deals. Some of the UK’s biggest lenders, including Barclays, HSBC, Lloyds Bank, NatWest and Santander have signed up, and more are likely to follow. The price – 3.99% fixed for five years – looks high on paper, but it’s likely that buyers won’t immediately see significantly lower rates when other lenders join the party. The recent return of 90% mortgages can give us an indication of what to expect. When lenders first returned to the 90% market in December, the best rate on a two-year fix was 3.24% and we saw major lenders ‘bunch’ their deals together by offering near-identical rates. Since then, the number of deals has more than doubled and the best rate has fallen to 2.99% – although that’s still 1.4% higher than the best rates seen before the pandemic. The cheapest 95% five-year fix at the start of March 2020 was priced at 2.9% – 1.09% cheaper than Yorkshire Building Society’s new deal.

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