First-time buyers struggling to save a big deposit are being thrown a new lifeline — but they’ll need to go it alone without help from parents.
Newcastle Building Society has launched a 98% mortgage, one of only a handful of deals that allow buyers to borrow more than the usual 95% of a property’s value. The product, called First Step, is aimed at people who have saved their own deposit rather than relying on the “bank of mum and dad.”
How the Deal Works
The mortgage is fixed at 5.25% for five years. Borrowers will need to put down at least £5,000, or 2% of the property price if that figure is higher. Loans are available from £96,000 up to £350,000.
Last year, research by Savills showed that more than half of first-time buyers (52%) received financial help from parents. Newcastle says it wants to back those who have managed to save independently.
Ben Smith, the society’s head of product development, said:
“First Step is for homebuyers who have worked hard to save a deposit by themselves and are ready to get on the property ladder.”
A Market Opening Up
The launch comes at a time when the choice of mortgages for low-deposit buyers has widened. According to Moneyfacts, the number of 90% and 95% loan-to-value products is at its highest in 17 years.
At 95% LTV, Marsden Building Society is offering a five-year fixed deal at 4.69% with a £998 fee, or 4.79% with no fee. Meanwhile, Skipton Building Society has been offering a 100% mortgage to renters who can show a strong record of paying rent on time.
Who It Helps
Mortgage brokers say Newcastle’s deal will appeal to renters who can manage monthly payments but are struggling to save while covering high rents and living costs.
David Hollingworth of L&C Mortgages said:
“It’s a great option for those that can show they’re able to afford the mortgage but can’t save fast enough while paying rent and bills.”
Parents may still be able to help in other ways — by covering survey or legal fees, for example — but they cannot provide the deposit itself.
A Word of Caution
Experts warn that stretching to a 98% mortgage does carry risks. With such a small deposit, borrowers start out with little equity in their homes.
Rachel Springall of Moneyfacts said:
“Not everyone can rely on family to get onto the ladder, so lenders need to support buyers with small deposits. But those borrowing at the top end of the market need to be careful. If house prices fall, they could find themselves in negative equity.”
The Takeaway
For first-time buyers willing to shoulder the risk, Newcastle’s First Step mortgage offers a rare chance to buy with just a 2% deposit. But it also underlines how hard it still is to get onto the property ladder without family support.
