Newcastle Building Society Introduces New Low-Deposit Mortgage Excluding Gifted Deposits
Newcastle Building Society has unveiled a fresh mortgage option called the First Step mortgage, allowing buyers to contribute as little as 2% of the property’s purchase price, with a minimum deposit set at £5,000.
Nevertheless, individuals who have received financial assistance from family members, often referred to as the Bank of Mum and Dad, are ineligible for this mortgage as gifted deposits are not permitted. According to Newcastle Building Society, the primary aim of the First Step mortgage is to aid individuals who lack familial financial backing.
While the lender still accepts gifted deposits for some of its other mortgage products, the property’s purchase price under the First Step mortgage must fall within the range of £101,000 to £350,000.
Repayments for this mortgage will be fixed at a 5.25% interest rate over five years, and no guarantor is required. Low-deposit mortgages offer the advantage of quicker entry into the property market, as saving for a sizable deposit is not necessary.
However, the downside is the potential risk of negative equity if property values decline, where the property’s worth drops below the outstanding loan amount used for its purchase. Additionally, interest rates on low deposit mortgages are typically higher, resulting in increased long-term repayment amounts.
Ben Smith, head of commercial and product development at Newcastle Building Society, emphasized the institution’s commitment to supporting first-time buyers, particularly those who have diligently saved for a deposit independently and are eager to step onto the property ladder.
Rachel Springall, a finance expert at Moneyfactscompare.co.uk, highlighted the importance of lenders offering support to buyers with modest deposits to sustain market activity, emphasizing the significance of reducing reliance on familial financial aid.
The article also touches on alternative housing schemes such as the Lifetime ISA, shared ownership, the Mortgage Guarantee Scheme, Guarantor Mortgages, and the First Homes scheme, each offering unique benefits and criteria tailored to assist prospective homebuyers in different financial situations.