One of the UK’s biggest mortgage lenders has changed its rules on gifted deposits, further damaging the homeownership hopes of first-time buyers in the wake of the coronavirus pandemic.
Nationwide’s new rules limit the amount of help first-time buyers can get from their parents, at a time when mortgage options are shrinking.
Here, Which? explains which banks still allow gifted deposits and offer advice on how much you’ll need to save to get a mortgage.
Nationwide caps help from parents
Nationwide’s new rules mean that if a first-time buyer applies for a 90% mortgage, their parents can now only contribute 25% of the deposit. The remaining 75% must come from the child’s own savings.
Nationwide recently became one of the first major lenders to reinstate its 90% mortgages, but these changes could mean buyers dependent on the ‘bank of mum and dad’ can no longer afford to buy a home.
The changes only apply to 90% deals, so if you’re taking out an 85% mortgage, the full amount could theoretically be gifted by a parent.
- Find out more: how parents can help first-time buyers
Which banks will still allow gifted deposits?
Of the 10 biggest mortgage lenders, Nationwide is the only one to impose restrictions on gifted deposits – but it’s also one of the only lenders to have reinstated 90% mortgages.
HSBC is continuing to lend up to 90% loan-to-value (LTV), and Barclays is still offering a 95% deal (albeit requiring a guarantor). The other major banks are all capping lending to new customers at 85% LTV.
Several banks told us they’d accept gifted deposits from parents on two conditions: that they could confirm the relationship between the applicant and person gifting the money and that the applicant could prove the money won’t need to be repaid in the future.
Which banks offer 90% and 95% mortgages?
Between March and August, the number of 90% mortgages available to first-time buyers has fallen from 446 to 44.
In that time, the number of lenders offering deals has dropped from 61 to seven.
The best rate on a two-year fix at 90% has risen significantly, from 1.59% in March (Halifax) to 2.29% in August (First Direct).
The table below shows which lenders are still accepting applications for borrowers with a 10% deposit.
There are even fewer options available at 95% LTV.
In March, 273 products were available for first-time buyers, a figure that’s now fallen to just 16. The number of lenders has dropped from 58 to 10.
The best rate on a two-year fix has remained at around 2.5% throughout. It is difficult to compare market-leading 95% mortgages like for like, as many come with criteria attached, such as requiring guarantors or only accepting buyers from specific professions.
The table below shows which lenders will consider buyers with a 5% deposit.
How much do you need for a 15% deposit?
This lack of deals means first-time buyers will need to put up more money when buying their first home – but even 85% mortgages have suffered to some degree in the mortgage cull.
In March, 425 mortgages were available at 85% LTV, compared with just 163 now.
Saving a big enough deposit is likely to be the biggest barrier for some first-time buyers.
On a £200,000 home, you’ll need £20,000 for a 10% deposit, but that rises to £30,000 for a 15% deposit.
There are some ways you can buy a home without having such a big deposit.
Check out our story from last week on guarantor mortgages to find out how your parents could help you by using their savings or property as collateral.
- Find out more: how to save a mortgage deposit
Getting a mortgage after you’ve been furloughed
Buyers could also face problems getting on to the property ladder if they’ve been furloughed due to the COVID-19 outbreak.
The biggest lenders will only take into account your furloughed income when you apply for a mortgage, meaning your borrowing power could be significantly cut.
But as the scheme winds down, some lenders may be more willing to relax their rules.
Yorkshire Building Society told us it will assess applications on a case-by-case basis rather than imposing one single rule.
Santander, meanwhile, said it will consider applications where borrowers can provide a letter from their employer confirming the date they are returning to work and their salary.
- Find out more: how to get a mortgage after being furloughed
Which? Money Podcast: buying a home during COVID-19
It’s a complicated time to buy or sell a property, but we’re here to help.
We recently discussed the current state of play for buyers, sellers and renters in the Which? Money Podcast.
The episode included advice on the effect of the recent stamp duty cut, the mortgage market and how buyer priorities are changing.
You can listen to the full episode below and find out how to subscribe here.