A groundbreaking initiative has emerged in the housing market, offering hope to first-time buyers struggling to gather substantial deposits. Mortgage brokers have lauded the introduction of a new home loan by Accord, a subsidiary of Yorkshire Building Society, designed specifically for those aiming to purchase their first homes.

This pioneering £5,000 deposit mortgage, introduced this week, aims to bridge the gap for individuals encountering difficulties in accumulating traditional down payments. Unlike conventional five-year mortgage products, this scheme comes with a fixed interest rate of 5.99%, slightly higher than the average.

Andrew Montlake, managing director at mortgage broker Coreco, hailed the scheme as “innovative,” emphasizing its potential to broaden homeownership opportunities for individuals who may have felt discouraged by the prospect of owning a home.

According to data from Halifax, the average deposit put down by first-time buyers in 2023 stood at a staggering £66,029, equivalent to 24% of the home value, highlighting the financial challenge faced by many aspiring homeowners.

The current rental landscape poses additional hurdles for prospective buyers, with rents soaring by a record 9% last month, according to the Office for National Statistics. Mark Harris, chief executive of mortgage broker SPF Private Clients, highlighted the importance of initiatives like the Accord loan in such a climate of escalating rents.

Borrowers opting for this scheme must still meet stringent affordability criteria, including passing affordability tests to ensure their ability to make monthly payments, even in the event of future interest rate hikes. The so-called “stress” rate utilized for affordability assessments stands at 8% for the Accord deal.

While Accord’s initiative stands out, other lenders have also introduced products tailored to first-time buyers in recent years. Skipton’s Track Record mortgage, for instance, assesses affordability based on evidence of regular rent payments, while Perenna offers mortgages with up to 95% loan-to-value on fixed interest rates for up to 40 years.

Accord has waived product or arrangement fees for its new deal, with certain restrictions in place, such as excluding flats or new builds. Despite potential risks associated with high loan-to-value mortgages, the minimum five-year fix provides borrowers with a cushion against short-term market fluctuations.

Moreover, the loan term offers flexibility, allowing repayment over a maximum of 40 years, provided it’s cleared before the borrower turns 70. While longer terms reduce monthly payments, borrowers should be mindful of accruing higher total interest over the loan’s duration.