First-time buyers’ dreams of home ownership are hanging by a thread after a clampdown by banks and building societies.
A rapidly rising number of lenders have ended mortgage offers for borrowers with 5 per cent and 10 per cent deposits.
The move has left many young buyers ‘effectively barred’ from the housing market, with some experts predicting a 25 per cent fall in first-time buyer sales because of the pandemic.
‘Effectively barred’: Many first-time buyers had been hoping to snap up a bargain now sales can go ahead again, but without a large deposit they may struggle to get a mortgage
Many had hoped to snap up a bargain now lockdown is easing and sales can go ahead again. Mortgage broker Trussle reported a 212 per cent increase in first-time buyer enquiries between April and May.
But concerns over falling property prices have left banks reluctant to lend to borrowers with less than a 15 per cent deposit, for fear they could end up in negative equity, where the owner owes more money than their house is worth.
Economists are predicting a 4 per cent fall in house prices this year, the largest decline in more than a decade.
The upshot is that, in many cases, buyers who had a mortgage application accepted before lockdown have since had their offer withdrawn.
They face having to abandon their purchase unless they can quickly scrape together thousands of pounds more for a deposit.
There is just one two-year mortgage deal available to those with a 5 per cent deposit, compared with 145 this time last year, according to data firm Moneyfacts.
The number of loans for those with a 10 per cent deposit has also plummeted in the past 12 months, from 287 to 16.
Hansen Lu, from Capital Economics, says: ‘Compared with before the virus hit, we expect to see fewer first-time buyers in both 2020 and 2021.’
The number of loans for those with a 10 per cent deposit has also plummeted in the past 12 months, from 287 to 16
Last week, Britain’s biggest building society became the latest lender to scrap mortgages for borrowers who do not have at least a 15 per cent deposit.
Before the pandemic, Nationwide offered mortgages to homebuyers with just a 5 per cent deposit.
With the average house costing £231,855, according to the Office for National Statistics (ONS), borrowers who had banked on getting a mortgage with a 10 per cent deposit would have put aside £23,185.
For a 15 per cent deposit they will now need to save an additional £11,600.
HSBC, one of the few lenders still offering a 90 per cent mortgage, is facing such high demand that it has been forced to restrict how much it can lend each day.
On some days it has stopped accepting applications just 30 minutes after opening for business at 8am, according to Andrew Montlake of broker Coreco.
Property expert Henry Pryor warns that the number of first-time buyers could fall by up to 25 per cent because of the pandemic.
He says: ‘Last year, more than 350,000 first-time buyers took the plunge, but 2020 and 2021 are looking very different.
‘Many can only afford the mortgages they now need because they have enjoyed bonuses every year — something many lenders are no longer going to take into account. These measures, and the impact on salaries of Covid-19, are going to make the first-time buyer an endangered species.’
Kelly Niven, 30, spent six years saving to buy her first property.
She had an offer accepted on an £88,000 three-bedroom, mid-terrace home in Washington, Tyne and Wear, this month and had secured a mortgage in principle with Lloyds six weeks ago. But when Kelly contacted the bank on June 8, Lloyds said it had pulled the mortgage.
She contacted three mortgage brokers who suggested a range of 90 per cent deals, but all were withdrawn before she could apply.
Her last hope is Nationwide, as she submitted an application just hours before the lender pulled its 90 per cent mortgages.
Kelly, who works in construction, says: ‘Finding another £4,400 so I can put down a 15 per cent deposit is simply not feasible.
‘My parents died when I was 12 and I have no one to ask for help. I have spent all my adult life being sensible with money just so I could buy a house. Now I might lose out.’
Marketing manager Jason Crowe and his girlfriend Brogan Harman, 23, a teacher, had an offer accepted on their first home the week before lockdown.
They planned to put down a 5 per cent deposit on the £27,000 three-bed house in County Durham so they could keep some money back for renovations.
They were granted a mortgage in principle from NatWest in March — but when the housing market reopened in May, their mortgage adviser told them banks were no longer offering 95 per cent mortgages.
Jason, 32, says: ‘Luckily, we are both still working and can find the extra money.’
Rob Houghton, of comparison website reallymoving.com, says: ‘This change will have a knock-on effect, as first-time buyers are the key that unlocks movement farther up the chain.
‘When first-time buyer numbers fall, second-steppers are unable to move up the ladder and so on.
‘Yet it’s no surprise that lenders are cautious, as it is still unclear to what extent the furlough scheme and mortgage holidays are propping up the market.
‘Although house prices have yet to fall considerably and demand still appears to be strong, the wider economic outlook is far from bright.’
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.