Saffron Building Society has launched a 95% loan-to-value (LTV) mortgage deal for first-time buyers, offering respite for hopeful would-be homeowners with small deposits.
The building society's 'rent to buy' mortgage will be available to first-time buyers who have rented for 12 months or more.
Alongside checking their credit history, Saffron BS will look at the renters' track records to determine their ability to keep up with similar level monthly mortgage payments.
John Eastgate, spokesperson for Saffron BS, says that high rental costs and inflation have prevented many prospective homeowners from building up big enough deposits.
He says the 'rent to buy mortgage' will help those who haven't managed to secure a large deposit but are capable of making the monthly mortgage payments:
"We know that there are many potential first-time borrowers who are capable of supporting a mortgage as they have been paying these amounts already in rent but are 'frozen out' of the market by the large deposits required."
However, the deal is not cheap, but comes with a rate of 6.49% (repayment only) and is fixed until the end of April 2015.
David Hollingworth, spokesperson for London & Country, says: "The rule still holds true that the bigger the deposit the better the choice but there are some encouraging signs for first-time buyers."
However, Hollingworth welcomes the move.
"Slowly but surely the options for those with smaller deposits is beginning to open up with more lenders offering rates to 90% loan to value and even a few options at 95%."
"The more deals that are launched the better the level of competition which will ultimately lead to better availability and keener rates."
A number of other 95% deals have crept into the market. Skipton Building Society offers a two–year fixed rate at 5.99% with a £195 fee. Yorkshire Bank has a 95% three- year fixed rate for first-time buyers at 6.99%.
And Nationwide has recently opened up the possibility of 95% mortgages to existing customers who have made regular savings into their Save-to-Buy account.
The Saffron BS deal is available at branches, by phone and through mortgage broker John Charcol. Saffron Building society will also waive its £195 fee to direct applicants who apply up until 31 July.
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