Can I get a 90% mortgage? Nationwide triples minimum deposit amount amid house price slump fears

Fears of falling house prices and negative equity have prompted the move.

First-time buyers need to find a deposit three times higher than before coronavirus struck, after one of Britain’s biggest lenders became the latest to pull its higher-value mortgages from the market.

Nationwide announced today that it will withdraw all mortgages where buyers have a deposit of less than 15 per cent, as fears over the economy grow.

Before lockdown put a stop to all housing market activity between late March and mid-May this year, buyers could get a mortgage if they had just five per cent of a property’s purchase price to put down.

But the enormous financial disruption caused by Covid-19 has sparked fears of falling house prices and the possibility that highly leveraged households could fall into negative equity, prompting Nationwide to withdraw these products.

Henry Jordan, the lender’s director of mortgages, said: “The outlook for the mortgage market and house prices remains uncertain. As a responsible lender we must factor this uncertainty into our lending assessments, which is why we have taken the decision to reduce our maximum loan-to-value for new business.

“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.”

The move will be a particular blow to aspiring buyers in London, where higher house prices mean amassing a large deposit is one of the biggest barriers to home ownership.

How much is a 10% deposit in the most expensive London boroughs?

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A 15 per cent deposit on the average home in the capital is a whopping £71,200. Even in Barking & Dagenham, the borough with the cheapest house prices in London, the average 15 per cent deposit is £40,500 - a prohibitive sum for almost anybody without significant help from the Bank of Mum and Dad.

Nationwide is not alone in reducing the amount it is willing to lend home buyers.

A combination of a backlog in enquiries and an increase in economic uncertainty has caused many lenders to pull higher loan-to-value mortgages from the market in the past month.

During the property market lockdown, valuers were unable to make physical valuations, meaning lenders were unwilling to take the risk of lending higher amounts on unseen properties.

Once in-person valuations were possible again, lenders started offering 90 per cent mortgages more widely. But high demand meant they quickly had either to limit the time these mortgages were available, or restrict the number on offer. Many lenders chose to pull these deals altogether.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Finding a 90 per cent mortgage now is tricky. HSBC is alone among the big lenders in offering them but even if you meet criteria, its allocation of funds is running out early every day so you have to be quick to get one.

“Outside of family-assisted schemes and Help to Buy, there are very few products out there for new borrowers.

“If a borrower can pull together a bigger deposit, perhaps with the help of the Bank of Mum and Dad, then it would increase product availability, rates would be cheaper and repayments would be lower.”

Harris also pointed out that proving affordability to get a higher loan-to-value mortgage was tricky even before the pandemic hit the UK. The more highly paid buyers with a 25 per cent deposit were able to borrow five times their salaries, whereas those with a smaller deposit found their borrowing limited to four times income, he said.

Can I get a higher loan-to-value mortgage if I’ve been furloughed?

“Furlough and loss of income continues to require more in-depth underwriting, especially for the self-employed or those who rely on overtime or bonuses,” said Miles Robinson, head of mortgages at online mortgage broker Trussle.

If you’ve been furloughed, then your furlough income will be used to calculate the maximum mortgage you can borrow, although if your employer is topping up your furlough payments and you have evidence of this, then the mortgage you are offered will be based on the full amount.

Do freelance income and overtime payments still count towards a mortgage application?

“A further consequence of the lockdown is that many lenders are now very cautious with variable income — ie overtime, commission and bonus — as clearly this will have been impacted by lack of work which is also likely to continue for the foreseeable future,” said Colin Payne, of independent mortgage adviser Chapelgate Private Finance. “However, there are exceptions and lenders will still look at key workers favourably when looking at variable income.”

Self-employed workers applying for a mortgage are usually asked for evidence of the past two years’ taxable income. Given the challenges now facing most freelance workers, lenders are likely to ask additionally for the last three months’ business bank statements, to better understand the applicant’s present income level.

Payne said there may also be more caution about lending to self-employed workers in industries affected by social distancing measures, including retail, restaurants and entertainment venues.

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