NATIONWIDE has become the latest lender to pull its first-time buyer mortgage deals that only require a low 5 per cent deposit.
The building society fears buyers with such low deposits risk falling into negative equity as the true economic impact of the coronavirus lockdown is yet to come to light.
Hundreds of lenders have pulled mortgage deals that require just a 5 per cent deposit[/caption]
Negative equity is where the value of a property plummets below the value of the loan, meaning you’ll owe the bank money if you sold your home for market value.
And Nationwide isn’t the only provider to pull 5 per cent deposit deals – figures from comparison site Moneyfacts.co.uk show that at the beginning of March there were 391 deals for first-time buyers with a 5 per cent deposit, but today there are just 16.
First-time buyers will now have to stump up at least a 15 per cent deposit if they want a deal with Nationwide.
It’s a blow for those who were hoping to get a foot on the property ladder with a small amount in savings.
Which lenders still offer mortgages with a 5 per cent deposit?
MANY lenders have pulled mortgage deals for first-time buyers with a 5 per cent deposit.
These are the only lenders still offering them:
- Accord Mortgages
- Bespoke by Bank of Ireland UK for Intermediaries
- Cumberland BS
- First Direct
- Monmouthshire BS
- Penrith BS
- Saffron BS
- Scottish BS
- Teachers BS
While first-time buyers have been able to cash in on low interest rates on mortgages, tougher affordability checks, combined with rising house prices and stagnating wages, have left many unable to scrape enough funds together for a deposit.
In some cases, the dilemma means single first-time buyers face a decade of saving before they have enough for a down payment on a property.
Nationwide says it cut the maximum loan to value (LTV) – the portion of the value of the property you need to borrow compared to the percentage of the purchase which is the deposit – to “protect” customers from suffering financially further down the line.
Henry Jordan, director of mortgages at the building society, said that it has a duty as a responsible lender to protect potential borrowers from an “uncertain” future for the housing market.
He said: “Our priority at this time must be to help members keep their homes.
“As such, we need to ensure our members can afford their repayments, while doing what we can to protect them from falling into negative equity.
“We will continue to keep this situation under review and hope to return to lending at higher LTVs in the near future.”
Nothing has changed for existing Nationwide mortgage customers.
Can I still get a mortgage with a 5 per cent deposit?
There are still a handful of lenders offering new borrowers mortgages if they have just a 5 per cent deposit – but hundreds have been pulled from the market.
Of the 16 deals still available, many are only available to those who work in certain, well-paid professions, such as accountants, dentists and doctors.
While lenders don’t exactly specify why this is, it’s likely to be because these jobs are considered to be safe in the current economic climate.
Shocking stats released this week show that 600,000 Brits have already lost their jobs during lockdown, with millions more are expected to follow in the coming months, particularly in the leisure and restaurant industry.
Workers in certain industries, such as healthcare, are less likely to face redundancies and as a result are considered to be less of a risk to lend to.
Other deals require you to put your parents’ savings or property up as a guarantor against your loan.
This can be risky for your parents who will suffer if you’re no longer able to afford your mortgage repayments.
Barclays’ Springboard mortgage is an example of this, and it’s currently the deal with the cheapest rate at 2.75 per cent and no fee.
The mortgage rate is fixed for five years but it requires you to tie-up your parents’ savings in a linked bank account also for five years.
The second best deal on rate alone is from Scottish Building Society at 2.59 per cent but it’s only available to specific professions, such as veterinary surgeons, dentists and optometrists. It has a fee of £995.
The term is over three years but it’s a variable deal, which means the rate can change so while it could go down, it could also go up, hiking your monthly repayments with it.
The best two-year fixed rate deal on rate is 3.07 per cent from Saffron Building Society – and it’s open to all professions. It has a £180 fee.
Remember though that the best rates will only be offered to the strongest applications, which will take into account your credit score, your income and your outgoings.
You can boost your chance of getting accepted for a mortgage with these expert tips.
Can I get a mortgage with a 10 per cent deposit?
There are more deals available for first-time buyers who have a 10 per cent deposit, although 704 deals have been pulled in the past three months.
There were 779 deals available before the coronavirus outbreak hit the economy and today there are just 75, according to Moneyfacts.co.uk.
The majority of best-buy deals are with HSBC – and none of them are restricted to certain professions.
The best is a two-year fix at a rate of 1.89 per cent, although you’ll need to fork out £999 on fees.
The second best deal is also with HSBC, a two-year fix at a rate of 2.14 per cent but there aren’t any fees.
Again, the best rates will be reserved for the most risk-averse borrowers so there’s no guarantee that you’ll be offered these exact rates.
Also remember to take into account any fees alongside the rate – as the cheapest rate may not necessarily be the best deal if it comes with a hefty fee.
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You should also seek advice from a mortgage broker if you’re unsure, there are free options out there such as London and Country.
Rachel Springall from Moneyfacts.co.uk said: “It is unfortunate to see more contraction in the higher loan-to-value mortgage market for new borrowers but this area has been deteriorating steadily due to the influence of the coronavirus pandemic.
“If first-time buyers are looking to get a step on the property ladder with a small deposit they would be wise to seek independent financial advice to go through their options.”
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