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One of Britain’s biggest banks has launched a mortgage that lets first-time buyers borrow up to 98% of the property’s value – but experts said the “very strict” rules would exclude many people and property types.
Santander said this was the first time for years that a major high street bank had gone beyond the traditional 95% borrowing limit, and some mortgage brokers called it a “bold and significant” move that would help more first-time buyers achieve their home ownership dreams.
The deal, for first-time buyers only, is a five-year, fixed-rate loan requiring a deposit of at least £10,000 – a lot less than the minimum required by many other deals – and where the maximum that can be borrowed is £500,000.
The City regulator and the Bank of England have been looking at ways to help more people on to the housing ladder and to encourage banks to respond to changes in how people live and work.
This has already started filtering through to the UK mortgage market: in recent months, several banks and building societies have announced that some customers can access bigger mortgages. While Santander is the largest lender so far to go above 95%, it is not the first: the Skipton and Yorkshire building societies have offered deals that allow people to borrow 100% and 99% of a property’s value respectively.
While welcoming the latest announcement, experts highlighted the restrictions and exclusions that apply to Santander’s 98% mortgage. It is not available on 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 first-time buyers.
Meanwhile, the maximum loan of £500,000 will be problematic for many would-be buyers in regions such as London, where the average house price stood at £539,000 in December, according to the Halifax.
Santander said its data showed that 52% of UK adults found saving up a deposit to be the biggest barrier to buying a property. Last year the average first-time buyer who borrowed from the bank put down a deposit of more than £85,000.
Paula Higgins, the chief executive of the HomeOwners Alliance, said a 98% mortgage from a major lender could make a real difference for some, but the strict eligibility criteria would limit how widely the product was adopted.
“Taken 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 go far,” she said.
Flats are the main route into home ownership in urban areas, especially in London, so their exclusion from first-time buyer mortgage products “is a worrying signal and risks putting ownership further out of reach for many”, Higgins added.
Aaron Strutt, at the broker Trinity Financial, said Santander’s move “may well tempt other big lenders back into offering more sub-5% deposit mortgages to new customers”.
However, those hoping to borrow the maximum £500,000 will need to earn more than £112,000 a year, as the most Santander will lend someone taking the 98% deal is 4.45 times their salary.
First-time buyers borrowing up to 95% from the bank may be able to obtain up to 5.5 times their salary, and a growing number of lenders, including Nationwide and NatWest, will now let some homebuyers borrow up to six times their income.
