First-time buyers forced to fall back on family as banks pull big home loans: You now need a 15% deposit to get a mortgage with the Nationwide
- The number of high loan-to-value mortgage deals on the market remains low
- First-time buyers currently see their choice of mortgage severely restricted
- Mortgages that link a loan to a family member’s savings or home could help
First-time buyers have been hit by a mortgage crunch as banks and building societies pull small deposit loans, but they could still benefit from little-known deals linking to a family member’s home or savings.
The latest blow came as Britain’s biggest building society, Nationwide, confirmed yesterday that it would not be offering mortgages to those without at least a 15 per cent deposit for the time being, unless they were already customers.
This is a hallmark of a mortgage market that has seen a sharp decline in high loan-to-value mortgages meaning that at the moment first-time buyers in particular will find it hard – but certain niche deals could still provide a workaround for some.
First-time buyers will still struggle to find low deposit mortgages after deals were pulled
The coronavirus lockdown and government freeze on the property market saw house sales drop dramatically, and this along with a flood of mortgage holiday requests and the Bank of England base rate cuts saw lenders pull half of all mortgage deals from the market.
Banks and building societies have since begun to reintroduce some of these deals, but high loan-to-value mortgages most popular with first-time buyers with smaller deposits remain scarce.
Last week Yorkshire Building Society’s Accord, Virgin, Ipswich Building Society and Clydesdale Bank pulled all of their 90 per cent loan-to-value deals.
Coventry Building Society briefly relaunched their 90 per cent deals last week but then pulled them again this week, leaving only HSBC, First Direct and Bank of Ireland Bespoke offering deals in this loan-to-value range.
No lenders are currently offering 95 per cent loan-to-value mortgages.
This is changing daily however, so for the most up-to-date deals search This is Money and L&C’s mortgage finder tool, which you can find by clicking here.
Mortgage lender have pulled small deposit loans in the face of the coronavirus crunch
I’m a first-time buyer, what can I do?
There are currently several niche mortgage deals on the market that may help a first-time buyer struggling to find the right 90 per cent loan-to-value deal.
One option is Barclay’s Family Springboard mortgage, which let homebuyers borrow up to £500,000 deposit-free at an interest rate of 2.75 per cent by linking their mortgage to a friend or relative’s savings.
These savings – the equivalent of 10 per cent of value of the home – are locked away in a Barclay’s fixed term savings account for five years as security for the home loan, while the homebuyer pays down the mortgage.
While it’s called the Family Springboard mortgage, it doesn’t need to be a family member doing the helping – Barclays says anyone with the equivalent deposit can act as the guarantor.
These deals are still available, so in theory a buyer could lend their guarantor the deposit, which would go into a savings account for five years, after which the deposit could be returned to the buyer who could then remortgage.
While this is a convoluted way of securing a loan, it may be a better option for some than going with one of the few 90 per cent loan-to-value deals left on the market.
The interest rate on the linked savings account tracks a margin of 1.50 per cent above the Bank of England Base Rate – currently 0.10 per cent – meaning savers get a 1.60 per cent return.
By way of comparison, the best buy five-year fixed rate savings bond is currently 1.40 per cent from RCI Bank.
The mortgage is a bit more expensive than most 90 per cent loan-to-value deals however at 2.70 per cent. For comparison, the best 90 per cent deal still available is from HSBC at 1.89 per cent.
Other similar options include Family Building Society’s Family mortgage, and the Tipton’s Family Assist mortgage.
The Post Office’s Family Link mortgage is currently unavailable due to the pandemic and Post Office doesn’t yet have a date when this will be reintroduced.
While this approach could work for some, many would also be better off going down the traditional mortgage route.
It’s always worth speaking to an independent financial adviser to help figure out what your best option is.
Why have lenders pulled low deposit deals?
Lenders have mostly blamed staffing shortages forcing them to rein in new mortgage lending and focus on existing customers, with the majority of the country working from home and a wave of customers requesting mortgage holidays.
Mortgage broker John Charcol’s Nick Morrey
Lower deposit mortgages usually take more work to underwrite, as they present a higher risk to the lender. As a result, if staffing problems at banks and building societies lead to deals being cut, it’s these deals that go first.
Kate Davies, executive director of the Intermediary Mortgage Lenders Association, said: ‘It’s become clear that there is a particularly high level of demand for high loan-to-value mortgages, which has led some lenders to temporarily withdraw their products.
‘These are responsible decisions which reflect lenders’ commitments to supporting their existing customers and ensuring service levels are unaffected by a surge in application volumes. However, lenders will be eager to return to this area of the market when service levels allow.’
Nick Morrey of broker John Charcol said: ‘Lenders’ ability to process applications are being severely reduced thanks to social distancing meaning fewer staff in the offices to do the work.’