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    What is the New £5000 Deposit Scheme?

    A new £5000 deposit scheme allows first-time buyers to borrow up to 99% of a property’s value. This scheme is currently only available with Yorkshire Building Society, and they said its new deal will enable first-time buyers across England, Scotland and Wales to purchase a property with a 1% deposit. The lowest deposit is £5,000 which can purchase a property valued at up to £500,000. This scheme will help first-time buyers step onto the property ladder with a more affordable and easily saved deposit, aspiring to help ‘generation rent’.

    Research by the Building Society showed that around two in five first-time buyers receive financial help from friends and family to climb the housing ladder. Yorkshire’s director of mortgages, Ben Merrit, said this new scheme could help create a “level playing field for those who don’t have financial support from their families to fall back on”. In addition, this helps to support individuals who cannot rely on their family for support. 

    *This scheme is not available with CityRise

    Am I Eligible?

    The £5000 deposit scheme is only available to first-time buyers. Buyers with a deposit of at least £5,000 could take out a five-year fixed-rate mortgage at 5.99%. This is slightly higher than the average five-year fixed rate currently at 5.34%.

    The mortgage is not available for new-build properties or flats and the loans are subject to in-depth credit score and affordability checks. The maximum age for a borrower at the end of the mortgage payments is 70 years old.

    Potential Risks

    It is smart for anyone who borrows a high mortgage to overpay it when possible,  to gain better equity and aim to reach a lower loan-to-value (LTV). A higher  LTV is a large risk if the property market drops because your mortgage could exceed the value of a home, putting leaders into negative equity. 

    Negative equity is when someone owes more money on a mortgage than the property value. This is a position that people want to avoid finding themselves in as this could lead to individuals having to pay more back than what their home is worth and making it difficult to sell or remortgage the property.

    How to Work Out Your

    Loan-to-Value Ratio

    If your house value is £250,000 and you have a deposit of £50,000, you would need a mortgage of £200,000.

    LTV Calculation:

    Mortgage ÷ Value

    (200,000 ÷ 250,000) = 0.8

    Result x 100 

    (0.8 x 100) = 80

    This gives you an 80% loan-to-value ratio.

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