New 98% Mortgage Launch Brings Fresh Hope for First-Time Buyers

A promising development in the UK mortgage market could open new doors for would be homeowners, including those in Derby.

🔷 The Big Change: Newcastle’s “First Step” 98% Mortgage

Newcastle Building Society has introduced a mortgage product aimed squarely at first time buyers, offering up to 98% loan to value (LTV) for properties priced between £96,000 and £350,000. The required deposit is just £5,000 or 2% (whichever is higher), and crucially the deposit must be self funded. Gifts or loans from family are not allowed.

The mortgage is fixed for five years at a rate of 5.25%. Newcastle has framed the product as a solution for buyers who have diligently saved but do not have access to external financial support.

According to industry commentators, the move is intended to boost accessibility to home ownership for those without familial backing. This group is often shut out of the ladder at present.

🔷 Why It Is a Positive Signal

Lower barrier to entry
The small deposit requirement compared to many existing mortgage products means that first time buyers may need less time to save and fewer extra sacrifices just to get started.
Encourages independent savers
By banning gifted or loaned deposits, the scheme rewards those who have built their deposit through their own means. This may help reduce inequality among first time buyers who lack family resources.
Expands options in a tight market
Many lenders have been reluctant to offer high LTVs in recent years due to risk. This move signals renewed confidence and may push other lenders to re enter that space.
Supporting affordability amid rising costs
With rent, general living costs and interest rates all under pressure, smaller deposit deals can help more people make the leap to ownership sooner.

🔷 Risks and Considerations

Limited equity cushion: Borrowers at 98% LTV have very little equity. If house prices stall or dip, negative equity risk grows.
Strict criteria: Lenders will be careful with affordability, and meeting those tests may still be challenging for some.
No family help allowed: That rule excludes some buyers who rely on family contributions. It is a clever trade off but not universally beneficial.
Interest rates still relatively high: Though the deposit requirement is lower, the 5.25% rate is not cheap and longer term market shifts could apply pressure.

🔷 What This Means for Derby

Derby’s property market tends to be more affordable than many parts of the South and Southeast. Average house prices are lower, especially for terraced homes or smaller semi detached homes. This means a 98% LTV product could cover a substantial portion of local properties.

For example:

A typical first time home in Derby priced at £190,000 would require a £3,800 deposit under a 98% LTV, but since Newcastle insists on either £5,000 or 2%, the buyer would need £5,000 in this case. That is still considerably less than the £9,500 to £19,000 deposit required for many 5 to 10% deals.
If a buyer in Derby is working full time, local wages might still enable meeting affordability criteria more easily than in higher cost areas, giving them a better chance of qualifying.
Derby agents and mortgage advisers could actively promote this product to local first time buyers, helping to stimulate demand and movement in the local market.

In short, for many Derby buyers who have managed to save a modest sum independently, this mortgage could tip the balance between continuing to rent or making that first purchase.

🔷 Final Thought

The 98% “First Step” mortgage is not a silver bullet, but it is a smart, targeted innovation in a market starved of breakthrough options for buyers without family support. If successful, it may encourage other lenders to follow suit, increasing competition and choice.

For Derby residents, especially younger buyers working and saving locally, it could represent a timely opportunity. It is worth speaking to a mortgage adviser to see whether your income, savings and credit history might align with this new route onto the ladder.

If you’re thinking about making a move and want a clear picture of what you can afford, and what your monthly repayments could look like, why not speak to us? Our friendly, experienced in-house mortgage specialists are here to offer you a free, no-obligation consultation, giving you the confidence to take your next step with ease. Contact your local branch of Hannells today.