Santander UK has launched a groundbreaking 98 per cent mortgage product specifically designed for first-time buyers struggling to accumulate a substantial deposit. The new scheme, named "My First Mortgage", requires a minimum deposit of just £10,000 and comes with a five-year fixed interest rate of 5.19 per cent.
A New Market Shift for Aspiring Homeowners
The mortgage allows borrowing up to £500,000 with repayment terms ranging from five to forty years, providing flexibility for new entrants to the property market. This initiative represents a significant development in the UK housing finance sector, as Santander becomes the first major high street bank to offer a 98 per cent loan-to-value product, moving beyond the traditional 95 per cent threshold.
Expert Analysis and Market Implications
Nicholas Mendes, mortgage technical manager at John Charcol, highlighted the psychological importance of this product. "For many renters, the monthly payment hasn't been the primary obstacle; it's been accumulating the deposit while facing rising rental costs, household bills, and childcare expenses," he explained. The average first-time buyer deposit with Santander exceeded £85,000 last year, making this new £10,000 requirement particularly attractive.
Mendes noted that the 5.19 per cent fixed rate without additional fees provides a clear pathway to homeownership for those with limited savings. However, he issued an important caution regarding the product's structure.
Understanding the Risks and Responsibilities
"The main consideration is the lack of headroom," Mendes warned. "At 98 per cent LTV, even a modest decline in property values could leave borrowers vulnerable to negative equity, potentially limiting their flexibility when considering remortgaging or moving properties."
He advised borrowers to approach this as a long-term strategy, recommending they maintain financial buffers and utilise overpayment options where possible to gradually reduce their loan-to-value ratio to more competitive levels of 95 or 90 per cent.
Industry Response and Eligibility Considerations
David Hollingworth, associate director at L&C Mortgages, welcomed Santander's entry into this market segment. "This is an important addition from a major lender, contributing to the growing range of mortgage products designed to alleviate the challenges facing first-time buyers," he stated.
Hollingworth emphasised that while these products expand accessibility, they come with specific eligibility requirements and won't suit every applicant. He noted that larger deposits still provide access to more competitive rates and broader product choices within the market.
Santander's Commitment to Responsible Lending
David Morris, Santander UK's head of homes, explained the bank's motivation behind the new product. "We recognise that saving for a deposit remains one of the most significant barriers to homeownership," he said. "Last year's average first-time buyer deposit of over £85,000 can appear unattainable for many aspiring homeowners, particularly those with moderate incomes, limited family financial support, or substantial rental and childcare commitments."
Morris emphasised Santander's dual commitment to expanding homeownership opportunities while maintaining responsible lending practices. "We aim to help more people experience the stability and pride that comes with owning a home," he added. "My First Mortgage accelerates the journey to ownership while ensuring buyers receive specialist mortgage advice and benefit from payment certainty for the initial five-year period."
The product launch reflects a gradually improving mortgage market that's becoming increasingly responsive to the needs of first-time buyers with limited deposit capabilities, though experts continue to stress the importance of understanding the associated risks and planning accordingly.
