Yorkshire Building Society has launched a new £5,000 deposit mortgage to help people looking to reach their homeownership targets.

The building society said that the product is the first of its kind in the UK, offering first-time buyers the opportunity to make a 1% deposit of £5,000 to purchase a property valued up to £500,000.

The product starts at 5.99% for a five-year fix, with the maximum age at the end of the mortgage term being 70 years old. The new product is available directly to customers and via brokers through Accord Mortgages, the lender’s intermediary-only arm.

Research by the society has suggested that £5,000 was the "magic amount" that would shorten the time needed for first-time buyers to get mortgage-ready.

For someone taking a £200,000 first-time buyer mortgage, this would result in a 97.5% LTV.

Director of mortgages at Yorkshire Building Society, Ben Merritt, said: "Our analysis showed a deposit of £5,000 – compared to a typical 5% – would make a huge difference to first-time buyers across the country by reducing the time it takes them to save up and achieve homeownership, from a maximum of 7.5 years in London to around 2.5 years.

"While £5,000 represents a 1% deposit for those who need to borrow the maximum amount available, the key is that customers are still putting money into a deposit, they still have to demonstrate strong creditworthiness and pass an affordability assessment to be eligible for a £5,000 deposit mortgage. We have a duty to encourage financial responsibility in anyone taking out a mortgage.

"It creates a level playing field for those who don’t have financial support from their families to fall back on, after research for our recently published home truths report showed that 38% of first-time buyers now receive financial help from friends and family to have the chance of stepping onto the housing ladder."

However, 1% mortgages have come under some criticism from some lenders, who warn that in the current climate, first-time buyers may not be able to move up the property ladder if they purchase this product.

Product manager at MPowered Mortgage, Amanda Symes-Reeves, stated: "The 1% deposit aspect of such mortgages is completely pointless as the borrower could find themselves in negative equity should house prices drop. At a time when climbing the housing ladder is already a struggle, should we really be saddling first-time buyers with even more debt? The risk is that such mortgages will create the next generation of mortgage prisoners."

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