Nationwide is changing first-time buyer mortgage rules and you'll be able to get a loan with just a 5% deposit
KEY TO IT Nationwide is changing first-time buyer mortgage rules and you'll be able to get a loan with just a 5% deposit
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NATIONWIDE will make it easier for first-time buyers with 5% deposits to purchase a home from this week.
The high street lender is giving customers a chance to secure a mortgage which covers 95% of the purchase price when buying a new build home.
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The building society is launching the scheme as part of its Helping Hand initaive
Credit: PA
The offer will be available from tomorrow, Thursday June 26 and will also allow customers to borrow six times their annual income through its Helping Hand scheme.
Nationwide's product helps aspiring home owners buy a property in expensive areas such as London without borrowing as much.
Many lenders ask for buyers to secure a minimum deposit of 10% or more when buying a new build property as the value of the property can fall in the first few years.
The bank is also increasing its loan to value (LTV) cap on new build flats.
A LTV is the maximum percentage of a property's value that a bank is willing to lend.
From tomorrow, Nationwide customers will be able to buy a new build flat with a 15% deposit as opposed to the previous figure of 20%.
Nicholas Mendes, mortgage technical manager at John Charcol said Nationwide's offer should "help more buyers who are currently priced out of the market".
But the expert warned that there are still some important things buyers need to consider before taking out a high loan-to-value mortgage.
He said: "Borrowing with just a five per cent deposit typically comes with higher interest rates than mortgages available to those with a larger deposit.
"This means repayments can be noticeably more expensive over time."
BLOWS TO FIRST-TIME BUYERS
He also said that customers should be wary about borrowing up to six times their income.
"While it can certainly help buyers afford the property they want, it does mean committing to a significant level of debt."
He added: "This can leave households more financially stretched, particularly if interest rates were to rise further or if their personal circumstances were to change."
TOUGH TIMES FOR FIRST TIME BUYERS
The shake-up comes amid a challenging period for first time buyers, with wage stagnation and rising property costs acting as a barrier to entry.
The end of stamp duty relief available to first time buyers in April and other government schemes such as Help to Buy have also bruised buyers.
The mortgage guarantee scheme, which helps people get on the ladder with a 5% mortgage is also due to end on June 30.
The scheme provides a guarantee that the Government will cover some of a lender's losses if a borrower can't afford to repay their mortgage and the home is repossessed.
It's been available for buyers since April 2021 but it's scheduled to end on June 30, and the Treasury wouldn't confirm if it plans a replacement scheme.
It comes as the FCA is looking at ways to loosen lending to help boost the property market.
Just this week, the watchdog said it would like to hear views on whether its rules "could better support more interest‑only mortgages'.
The body said: "Interest‑only mortgages could be suitable for consumers who may struggle to afford a repayment mortgage and can support sustainable home ownership.'
With this type of product, all you pay each month is the interest on the amount you borrowed.
The product was hugely popular before the 2008 financial crash, but has become a rare find since.
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