Building societies have launched a new £5,000 deposit mortgage allowing aspiring homeowners to borrow up to 99% of the value of their property.

Yorkshire Building Society says its new no-fee agreement will enable first-time buyers in England, Scotland or Wales to buy properties worth up to £500,000 with a deposit of £5,000.

For someone buying a typical first-time buyer property for £200,000, a deposit of £5,000 would be equivalent to 2.5% of the purchase price, with the remaining 97.5% being mortgaged.

New mortgages are available directly to customers or through brokers through Accord Mortgages, the lender’s intermediary.

Ben Merritt, director of mortgages in Yorkshire, said the association’s research showed the £5,000 amount could reduce the time it takes first-time buyers to prepare for a mortgage.

He added that this could help encourage “a level playing field for those without family financial support”.

The deal, which is only available to first-time buyers, allows borrowers with a deposit of at least £5,000 to apply for a five-year fixed mortgage at an interest rate of 5.99 per cent.

The maximum borrower age at the end of the mortgage term is 70 years.

The mortgage is not available for new-build properties or apartments and the association says loans are subject to strict credit score and affordability checks.

Mr Merritt said: “For those who need to borrow the maximum amount available, £5,000 equates to a 1% deposit, but the key is that customers still put money down as a deposit and they still have to demonstrate strong creditworthiness and pass the loan. Capability assessment qualifies for a £5,000 deposit mortgage.

“We have a responsibility to encourage anyone applying for a mortgage to be financially responsible.”

Previous research by the association showed that around two in five (38 per cent) first-time buyers received financial help from friends and family to get on the housing ladder.

Mr Merritt said: “The association’s Home Truths report, released in September 2023, which looked at 500 first-home buyers, showed that 78 per cent of people in this category believe owning a home is becoming an elite privilege, while 63 per cent of people think the UK is in danger of becoming a nation of renters.”

Other lenders also offer deals to potential homeowners who may have trouble saving enough for a down payment.

Skipton Building Society offers ‘track record’ mortgages to help renters get on the property ladder, which may require no deposit, subject to terms and conditions. Skipton uses borrowers’ rent payment records to help determine what they can borrow.

Some lenders also offer deals where family members’ savings are secured against a set period of time, such as Barclays’ Home Springboard Mortgage.

In May last year, Leeds Building Society announced that aspiring homeowners could improve their ability to get a mortgage by subscribing to services such as Netflix or Spotify following a new partnership with credit information company Experian.

Leeds Building Society is connected to the Experian Boost service, which allows additional evidence of a borrower’s good financial record to be considered in loan decisions.

Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “This new Yorkshire Building Society deal will undoubtedly be popular with aspiring buyers who are unable to secure a sufficient deposit to get onto the property ladder. A welcome home. The mortgage market is always in need of more innovation to support first-time homebuyers, so it will be interesting to see if other lenders follow suit.

“Anyone borrowing at a higher loan-to-value ratio would be wise to overpay on their mortgage to gain more equity and aim for a lower loan-to-value ratio so they can find a cheaper deal when refinancing.

“Borrowers must contact their lender immediately and seek advice if they are concerned that a high loan-to-value deal has fallen into negative equity.”

She continued: “Due to the cost of living, aspiring homeowners may find it difficult to save more money each month for a deposit, especially if they spend a large portion of their salary on rent.

“Cutting back on non-essential expenses is a smart move, but buyers also need to be aware of rising utility bills or commuting costs in the coming months. For borrowers looking for peace of mind with their monthly repayments, seeking a long-term fixed mortgage may be a better option. Good choice.”