Nationwide's cap on gifted deposits 'makes it impossible' for first-time buyers

Melissa Lawford
·4-min read
A Nationwide Building Society sign
A Nationwide Building Society sign

The “Bank of Mum and Dad” is being pushed off the property ladder as lender Nationwide seeks first-time buyers who can save for themselves.

The country’s second largest lender has imposed restrictions on its newly-reintroduced 10pc deposit mortgages which mean that many first-time buyers will be forced to save up more cash before proceeding. 

Last month Nationwide became the first high street lender to bring back 10pc deposit mortgages after lenders hurriedly withdrew home loans in the wake of coronavirus uncertainty. But the reintroduction is not providing first-time buyers with an easy win.

To qualify, buyers must have saved 75pc of their deposits independently and they must be buying properties that are at least two years old.

The move signals that, in spite of reports of a post-lockdown property surge and continued house price growth, the lender is decidedly uneasy about the long-term outlook for the property market.

It also shows that Nationwide considers the new build market to be at particular risk of coming house price falls.

If the money for a deposit is inherited, Nationwide considers this as funds coming from the applicant’s own savings.

Nationwide is currently the only major lender with this approach, but the move has a disproportionate impact as there is still a dearth of low deposit mortgages available. It has also sparked fears that it could be replicated elsewhere.

Frances Clacy, of Savills estate agents, said: “If this policy were to be widely adopted it could really limit the number of first-timers actually able to access home ownership.”

“We could also see more aspiring first-time buyers move back into their family home to live rent free and save up the deposit money needed themselves, or confined for indeterminate periods to the private rented sector,” she added.

The average first-time buyer deposit is currently about £52,000. “If the Bank of Mum and Dad were capped at 25pc, equivalent to £13,000, even first-time buyers benefiting from help would have to save an average of £39,000,” said Ms Clacy. 

This is the equivalent of three-quarters of the average first-time buyer household’s £51,000 annual income.

Excluding Bomad lending will be a blow for almost half of Britain’s first-time buyers. Last year, 136,000 first-time buyers were funded by Bomad – 40pc of all entry level purchasers, according to Savills estate agents.

Jonathan Harris of broker Forensic Property Finances said: “This is such a draconian, backwards step from Nationwide and thankfully one that has not been replicated elsewhere.”

“Talk about making life impossible for first-time buyers – practically all the first-time buyers we see have financial help from the Bank of Mum and Dad, usually in the form of a gifted deposit.”

The restrictions only apply to lending on 10pc deposit mortgages and Nationwide will still lend 15pc deposit mortgages to buyers with financial help from their families. This is because, at this level, there is less risk of buyers getting into negative equity

Nationwide has forecast that house prices could, in one scenario, fall by 13.8pc in the wake of the pandemic. If this happens, the value of a home bought with a 10pc deposit mortgage would soon be worth less than a buyer borrowed to pay for it.

Chris Sykes of mortgage broker Private Finance said: “I think the mentality behind this is they only want the best of the best clients.”

A Nationwide spokesperson said that they want majority self-saved deposits because “it demonstrates that someone is able to save and manage their finances.”

“These are difficult times for those looking for their first home and affordability must be placed at the forefront of any decision,” they added. “Above all we need to continue to lend responsibly.”

If property prices fall, the homeowner gets into negative equity and may need to sell, they will need to put more money into the property. If they are a saver with their own liquid funds, they are more likely to be able to do this than if they had been gifted money from their parents, said Mr Sykes.

They are also likely to be in a better position if their home was bought second hand.

Box-fresh homes typically sell with new build premiums. The National Audit Office puts the value of this at between 15pc and 20pc of a home’s value – and by definition this premium is not passed on when the home is resold.

This means that in an uncertain market the value of new build homes is at risk of falling further than that of other properties. Any house price drop would be compounded by the loss of the new build premium. 

There is no change to Nationwide’s lending on Help to Buy.

The new restrictions will increase demand for the government’s equity loan scheme, which is one of the only ways that buyers can purchase a home with less than a 10pc deposit.