One of Britain’s biggest banks has launched a mortgage that allows first-time buyers to borrow up to 98% of the property’s value – but experts say the “very strict” rules will exclude many people and property types.
Santander said it was the first time in years that a major high street bank had exceeded the traditional 95% lending limit, and some mortgage brokers called it “bold and significant” step that will help more first-time buyers achieve their dreams of home ownership.
The deal, for first-time buyers only, is a five-year, fixed-rate loan that requires a deposit of at least £10,000 – well below the minimum required on many other deals – and where the maximum that can be borrowed is £500,000.
The City regulator and the Bank of England are looking for ways to help more people on the housing ladder and to encourage banks to respond to changes in how people live and work.
This has begun to filter into the UK mortgage market: in recent months, many banks and building societies have announced that some customers can access larger loans. While Santander is the biggest lender to date to exceed 95%, it is not the first: building societies in Skipton and Yorkshire are offering deals that allow people to borrow 100% and 99% of the value of a property.
While welcoming the latest announcement, experts highlight the restrictions and exclusions that apply to Santander’s 98% loan. It does not apply to flats, new build homes or any properties in Northern Ireland.
In addition, self-employed buyers are excluded and, for a joint mortgage application, both people must be the first buyers.
Meanwhile, the maximum loan of £500,000 will be a problem for many buyers in regions such as London, where the average house price stood at £539,000 in December, according to Halifax.
Santander said its data showed that 52% of UK adults found saving a deposit to be the biggest barrier to buying a property. Last year the average first time buyer borrowing from the bank put down a deposit of over £85,000.
Paula Higgins, THE The chief executive of the HomeOwners Alliance, says a 98% mortgage from a major lender can make a real difference for some, but strict eligibility criteria will limit how much the product is adopted.
“Together, these restrictions raise real questions about how many first-time buyers can realistically benefit, particularly in higher-priced parts of the south-east where £500,000 may not be far,” he said.
Flats are the main route to home ownership in urban areas, particularly in London, so their exclusion from mortgage products for first-time buyers “is a worrying signal and risks putting home ownership out of reach for many”, added Higgins.
Aaron Strutt, of broker Trinity Financial, said Santander’s move “could tempt other major lenders back into offering more sub-5% deposit loans to new customers”.
However, those who hope to borrow the maximum £ 500,000 must earn more than £ 112,000 a year, because the majority of Santander who will lend to someone who takes the 98% deal is 4.45 times their salary.
First-time buyers borrowing up to 95% from the bank can get up to 5.5 times their salary, and a growing number of lenders, including Nationwide and NatWest, will now allow some home buyers to borrow up to six times their income.