Friday, August 14, 2020

Across the country, crack down on mortgage borrowers who rely on parents for deposit

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Nationwide announced that first-time homebuyers will now have to prove that at least 75% of the money they put down for a mortgage comes from their own savings.

The building society, which is the UK’s second-largest mortgage lender, will limit the generous contribution from the so-called Bank of Mum and Dad and ask buyers to provide a large deposit on their own savings.

The move comes just months after Nationwide mortgage clients learned they would now need a minimum of 15% deposits to keep them from sliding into negative equity if house prices fell.

Its latest crackdown, which comes amid the coronavirus pandemic, will now disappoint those who would have relied on their parents to set foot on the property ladder.

Across the country, crack down on mortgage borrowers who rely on parents for deposit

Nationwide, the UK’s second-largest mortgage lender, will limit contributions from the so-called Bank of Mum and Dad. (Stock Image)

Sources told The Sunday Times that the mortgage lender now wanted first-time homebuyers to provide proof that they had set aside their own savings and were not relying heavily on their parents.

This is a survey conducted by Savills estate agents this week found that 40% of all first-time homebuyers with mortgages benefited from the family’s help in securing their home purchase last year.

Figures showed Mom and Dad’s Bank totaled £ 5bn in 2019 and was important in helping buyers break into the property market.

However, Savills has since predicted that the Bank of Mum and Dad’s contributions will decline this year due to the decline in market activity due to the coronavirus pandemic.

In June, the construction company told its mortgage clients they would now need a minimum of 15 percent deposits to try to keep them from sliding into negative equity if house prices fell.

The move by Britain’s largest construction company, which it called “prudent”, applies to home purchase loans as well as remortgages.

Across the country, crack down on mortgage borrowers who rely on parents for deposit

Across the country, crack down on mortgage borrowers who rely on parents for deposit

The move comes after the construction company told its mortgage clients that they will now need a minimum of 15% deposits to keep them from sliding into negative equity if house prices fall. Pictured: A national branch in London

This has been a blow to first-time buyers, who often have only small amounts saved to access the real estate scale and who have become accustomed to the wide availability of low deposit offers in recent years. .

This group could previously borrow up to 95 percent LTV (loan to value) from Nationwide Building Society, depending on how they applied.

However, existing mortgage customers will still be able to obtain loans up to 95% LTV from Nationwide.

Nationwide said the change, due to “these unprecedented times and an uncertain mortgage market,” would take place from June 18.

Customers who already have a mortgage with Nationwide will be able to switch to a new mortgage agreement regardless of their LTV – provided there is no increase in the value of the loan.

Applications from existing mortgage customers who move and whose LTV is greater than 85% will also be considered on a “comparable” LTV basis, Nationwide said.

The Company said that as a responsible lender it must ensure that borrowers can afford mortgage payments and are, to the extent possible, protected against the potential for negative equity, if house prices fall. .

Negative equity occurs when someone owes more on their home than their value.

MailOnline had contacted Nationwide for comment.

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