Nationwide building society has returned to the high loan-to-value mortgage market, cutting the deposits it requests from first-time buyers following last week’s announcement of a stamp duty holiday.
But in a sign that lenders are uncertain about the direction of the housing market, it has capped loans at 90% and introduced new hurdles for would-be borrowers.
The society pulled out of the low-deposit mortgage market in mid-June, stating that it wanted to protect borrowers from falling into negative equity. First-time buyers who had been able to apply for a loan with just a 5% deposit were told that they would now need to find 15% of the cost of their new home.
Following last week’s announcement of a stamp duty holiday in England and Northern Ireland on properties costing up to £500,000 it said it would reintroduce 90% mortgages for first-time buyers from Monday 20 July.
It said it hoped the move would help “create a positive impact on a market that, despite being in relatively good health, is still recovering”.
However, the mortgages come with a range of terms and conditions. To qualify, would-be first-time buyers must be buying a house that is at least two years old, and must not be relying on a deposit that has been entirely gifted by family. They cannot be on the government’s furlough scheme and will be subject to strict affordability checks.
Mortgage terms will be limited to 25 years, which will rule out any buyers who would need to increase the length of their loan in order to make the monthly repayments possible.
In recent years, first-time buyers have increasingly been taking mortgages over 30 years in order to make sure they qualify for borrowing.
Nationwide will cap lending on flats at 75% for newbuilds and 85% for subsequent buyers.
The strict criteria applied by the society suggest that lenders are wary about what will happen to the housing market over the coming months. Halifax and Nationwide have both reported price falls in recent months, despite a surge in interest from buyers since the market was released from lockdown.
Last Wednesday’s cut to stamp duty, which will mean no one buying a property costing up to £500,000 will pay the tax and those making larger purchases will save £15,000, also boosted interest.
Announcing the return to 90% loans for first-time buyers the society’s director of mortgages, Henry Jordan, said these borrowers were vital to breathing life into the housing market and economy.
“We understand one of the biggest barriers to homeownership is raising a deposit,” he said. “While we will continue to monitor the market carefully, we feel it is the right time to enhance our lending, initially to those looking for their first home.
“We welcome the government’s announcement on stamp duty and hope our combined changes create a positive impact on a market that, despite being in relatively good health, is still recovering.”
David Hollingworth, of mortgage broker London & Country, said it was “good to see Nationwide coming back so quickly” to the first-time buyer market, as there were only a handful of lenders offering 90% loans.
“It looks like they are intending to be supporting that part of the market from now on, which is important, as we have seen some other lenders come back and then withdraw because they have been inundated,” he added.
Simon Gammon, managing partner of Knight Frank Finance, said anyone looking for a 90% mortgage would now find the criteria more complex than previously.
“Lenders are asking a whole raft of new questions and there are new ways they are underwriting the loans,” he said.
“It’s really welcome that another lender has come in with a 90% mortgage,” he said. “We are way off seeing 95% mortgages come back which is a shame but probably a reflection of how lenders feel about property prices.”
