New mortgage in the UK: first apartment with only 2% deposit.

New mortgage product for first-time buyers

According to The Sun: Now, first-time buyers can purchase a property with just a £5,000 deposit.

The 'First Step' mortgage from Newcastle Building Society allows you to contribute only 2% of the property's value.

Those who meet the criteria can get a maximum loan of £350,000 to purchase their home.

Buyers can also lock in their payments at 5.25% for five years.

This offer is considerably lower than the 10% or 20% deposit usually required by other lenders.

For example, a buyer who needs to contribute 20% on a property worth £350,000 will have to pay £70,000. Instead, under this scheme, they will be able to pay approximately £7,000.

Newcastle Building Society has reported that buyers do not need a guarantor. This means there is no need for a family member or friend to legally commit to covering payments if the buyer fails to do so.

Ben Smith, head of commercial and product development at Newcastle Building Society, said: “First Step creates more accessible and advantageous opportunities for home ownership and demonstrates our commitment to providing more people the chance to make their first step onto the property ladder.”

Risks and benefits of the new product

Mortgages with a low deposit were popular before the financial crisis of 2008, but they disappeared from the market after that.

These products have been recognized as an affordable way for buyers to enter the housing market.

However, a higher loan-to-value ratio may lead to higher interest rates during repayment.

It is also important to consider the risk of negative equity, which means you could owe more than the value of your home, making it difficult or impossible to sell.

Rachel Springall, financial expert at Moneyfactscompare.co.uk, noted that this offer is one of the few mortgages that allow buyers to borrow at a high loan-to-value without needing a guarantor.

She added: “Not everyone can rely on the 'Bank of Mum and Dad' to get a foot on the property ladder. That is why it is so important for lenders to support buyers with small deposits to keep the market moving.”

Alternatives in the mortgage market

Many lenders offer their low deposit mortgage options.

Earlier this year, Nationwide launched a 95% mortgage for buyers looking to purchase a new home.

This offer also allows customers to borrow up to six times their annual income through the Helping Hand program.

In addition, Skipton Building Society offers a 100% mortgage, allowing the purchase of a property with no deposit.

A similar mortgage offer was recently launched by April Mortgages.

The Accord Mortgages offer allows Universal Credit to be considered as income during affordability assessments for purchasing a home, provided at least one applicant has a job and receives a salary.

Up to 60% of the Universal Credit amount will be taken into account, however, this does not include housing benefit, service charges, or elements for children over 11 years old.

Thus, the new mortgage offer 'First Step' from Newcastle Building Society marks an important development in the housing market, providing more opportunities for first-time buyers. Despite the risks associated with such mortgages, these solutions can form a foundation for those aspiring to own property, simplifying access to the housing market.