Nationwide one of Britain’s biggest mortgage lenders has decided to triple the minimum deposit for first-time buyers.
From Thursday it will withdraw all its new loan deals where the first-time buyer only puts up a 5% deposit and set a new minimum deposit of 15%.
Nationwide revealed it was making the move to protect new customers from being trapped in negative equity. It happens when a borrower takes out a mortgage with a small deposit, only to find that as house prices fall, the mortgage becomes more than the value of the property.
The rise represents a dramatic increase in the amount that buyers will have to save to buy the average home. According to Nationwide’s house price index, the average UK house price is £218,902. That means a buyer will have to stump up a minimum deposit of at least £32,835 compared with £10,945 before.
Henry Jordan, the director of mortgages at Nationwide, said:
“As a responsible lender, Nationwide needs to ensure borrowers can afford mortgage payments and are, as much as possible, protected against the potential for negative equity, should house prices decrease … Our priority at this time must be to help members keep their homes.”
Nationwide’s decision to cap its maximum loan-to-value (LTV) at 85% comes only weeks after its data revealed a plunge in house prices across the UK in the wake of the coronavirus pandemic.
It said that in the month to May house prices fell by 1.7%. It was the biggest monthly fall since February 2009, when Britain was in the grip of the financial crisis.
First-time buyers hoping that other lenders will give them a low-deposit mortgage are likely to be disappointed. Nationwide’s move follows a string of market withdrawals by smaller lenders last week.
The announcement will be a major blow to England’s property market as it has begun to pull out of the Covid-19 lockdown.
A month ago the housing market in England got the green light to reopen after seven weeks of lockdown. However, property professionals warn that if first-time buyers cannot get mortgages, then the property market will stall and prices will fall.
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