Top 10 lender launches 95 per cent mortgage

Life is returning to the 95 per cent mortgage market after Yorkshire Building Society declared it was relaunching the loans, the first top 10 lender to do so since the chancellor’s Budget announcement of a government-backed mortgage guarantee scheme. 

Yorkshire’s Accord Mortgages — which lends through mortgage brokers — will open its doors to applicants on 95 per cent loan-to-value mortgages from Wednesday. 

Jeremy Duncombe, Accord managing director, said: “We feel the time is right and the economy is right for us to come back into the market at this point.”

However, he said Accord’s new mortgage would not be offered through the government’s mortgage guarantee scheme.

Mr Duncombe welcomed the scheme, saying the lender had considered joining it. But he added: “At this point we’re happy and comfortable to be able to do this without the government scheme . . . [It] gives us confidence that other lenders would be joining us in the market.”

The 95 per cent loan-to-value market virtually disappeared in 2020 as lenders worried about the prospect of falling house prices and the risk of defaults in the pandemic. From 391 deals available at 95 per cent LTV in early March 2020, the number plunged to just 5 earlier this month, according to finance website Moneyfacts. 

Chancellor Rishi Sunak encouraged banks to return to the low-deposit segment in his Budget by offering a government guarantee on a portion of the loans in case of losses. The UK’s top five banks said they would support the initiative. The government will charge lenders a commercial fee for each mortgage in the scheme — a cost not incurred by Accord. 

Accord’s new mortgage is a five-year fixed rate deal with an interest rate of 3.99 per cent, a £995 arrangement fee and free valuation.

It comes with restrictions the lender described as “prudent”. Only first-time buyers may apply; the loan must not exceed 4.49 times their income; and the maximum loan size is £500,000. The lender is ruling out mortgages on flats and new-build homes. 

Aaron Strutt, product director at mortgage broker Trinity Finance, said the low-deposit mortgage was welcome but the rates were high compared with others on the market. “There is nearly a 3 percentage point gap between the cheapest two-year fix and this 5 per cent deposit deal. Borrowers are going to pay a premium to access the lowest deposit rates.” 

Yorkshire Building Society is the ninth-biggest UK mortgage lender, according to the most recent figures from UK Finance, with £7.8bn of lending in 2019 and just under 3 per cent of the market. 

Mark Harris, chief executive of mortgage broker SPF Private Clients, praised Yorkshire Building Society/Accord for being the first lender of notable size to re-enter the 95 per cent LTV market.

“Others will follow suit, whether they are utilising the government’s mortgage guarantee scheme or not . . . As more lenders launch their 95 per cent offerings, we would expect pricing to follow suit and come down accordingly.” 

At a five-year rate of 3.99 per cent, compared with 3.14 per cent for the standard five-year 90 per cent LTV deal, someone buying a £250,000 home would save more than £10,000 in payments over five years if they were able to find the extra deposit for the lower rate, said James Andrews, personal finance expert at comparison site money.co.uk.

Noting that the larger banks are expected to release their own low-deposit schemes in the next few weeks, he added: “It might be worth holding off until you see their rates.” 

Accord warned that it may have to withdraw the mortgage should demand prove too high to service customers adequately. “This product may be withdrawn at relatively short notice, but we will continue to signpost our intentions wherever possible.”

The pandemic caused many lenders to withdraw mortgages at 90 per cent LTV as well as at 95 per cent. Some, including Accord, returned to the 90 per cent market last year, but only in “flash sales” that restricted availability to periods as short as one or two days.