Is the mortgage freeze starting to thaw? Nationwide and Coventry BS bring back small deposit deals after stamp duty cut gives the property market a boost
- Nationwide and Coventry set to reintroduce 90% loan-to-value deals
- Most low deposit deals were cut in the wake of the coronavirus lockdown
- This comes as experts predict housing market boost due to the Stamp Duty cut
Britain’s biggest building society will start lending to home buyers with a 10 per cent deposit again after last week’s stamp duty cut gave the housing market a boost.
Nationwide, the UK’s largest building society, and fellow giant Coventry BS have said they will offer up to 90 per cent loan-to-value deals once more, after they and other lenders axed them through lockdown.
Lenders pulled up the drawbridge in the wake of the pandemic over worries about the economy and house prices, leaving borrowers with small deposits with nowhere to go.
Now it appears that restrictions may ease as the Chancellor’s stamp duty holiday up to £500,000 until 31 March 2021 gives the property market a shot in the arm.
Nationwide and Coventry Building Society are both set to reintroduce 90 per cent deals
Rishi Sunak announced last week that all buyers would see a zero rate of stamp duty up to £500,000.
This takes an estimated 90 per cent of property purchasers out of paying any tax and those buying more expensive homes will only pay stamp duty on the amount above £500,000.
Nationwide specifically referenced the stamp duty cut as a reason for re-entering the market, adding that it expects a flurry of activity as people look to move before next March.
Rates are currently at record lows, but not everyone has been able to take advantage of them, and low deposit mortgages actually got more expensive as deals were pulled.
Some 90 per cent of the 10 per cent deposit home loans on offer before lockdown were axed, with more low deposit mortgage deals being pulled in the first four months of lockdown than in the entire first year of the financial crisis.
The cuts came as major lenders worried about negative equity if house prices fell, and disproportionately affected first-time buyers.
And the few lenders that did still offer these deals were inevitably unable to process all the applications they were getting from first-time buyers.
Moneyfacts expert Eleanor Williams said: ‘It seems that while lenders have the appetite to lend, intense customer demand being levelled at the small number of providers who have relaunched in these tiers is overwhelming, at a time when operational capacity is already stretched.’
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.
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.
But lenders will have also been concerned over the health of the economy and the potential of their customers going into negative equity if house prices were to drop sharply.
But now that the country’s biggest building society in Nationwide is about to return their 90 per cent deals to market this pent-up demand should be significantly eased.
This may also go some way to reversing the steady rise in rates that has been seen in this loan-to-value tier.
However, while Nationwide says there is no limit to the number of loans they will issue to first-time buyers, the building society has not yet published details of the products and says that ‘enhanced criteria will apply’.
A spokesman told This is Money that it will only lend on houses that are at least two years old – flats and new builds will not be included – and that borrowers will be subject to ‘enhanced affordability criteria’.
The loans will be available from Monday next week.
And Coventry Building Society says it will only offer its deals for 36 hours from tomorrow morning. The lender issued a similar two-day run last month.
Experts say that it’s unlikely that any other large lenders will reenter the space immediately.
Mark Harris of mortgage broker SPF Private Clients, said: ’Nationwide was one of the few lenders which was really active at 90 per cent LTV and apart from HSBC, none of the big high-street names have had the same appetite.
The decline in mortgages at different loans to value between the start of March and last month
‘The other big lenders still have resource issues so it doesn’t look as though Halifax or Barclays are quite there yet when it comes to a 90 per cent offering.
‘Coventry Building Society is returning to the market but if Santander or say Natwest were to join Nationwide and HSBC, this would put pressure on the other big lenders to offer 90 per cent LTV while ironically easing the pressure on them once they do.’
Enquiries from house hunters have surged since Chancellor Rishi Sunak announced the nine-month tax cut in his mini-Budget summer statement on Wednesday.
Zoopla said enquiries were up 29 per cent on Wednesday compared to the daily average of the past month.
And Rightmove recorded its busiest-ever day on Tuesday, receiving 7.7million visits from prospective customers.
The number of mortgage deals on offer is changing daily. For the most up-to-date products useThis is Money and L&C’s mortgage finder tool, which you can find by clicking here.
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