Lenders are introducing new rules that mean first-time home buyers cannot rely on the “Bank of Mum and Dad” to stump up most of the cash for their deposit.
The controversial new policy states that borrowers looking to get a mortgage at 90% loan-to-value must prove that no more than a quarter of their deposit was gifted to them. The rule does not apply to customers looking for deals at 85% loan-to-value or lower.
With around 40% of first-time buyers thought to have received financial help from family members last year, the change could affect significant numbers of potential homeowners. According to estate agency Savills, gifts and loans from parents to help their children onto the property ladder totalled £5bn last year.
Lenders have not commented on the reasons behind the rule but it comes as economic uncertainty has cast doubt on the future of Britain’s housing market. A number of lenders removed their highest loan-to-value deals after the pandemic hit amid fears that property prices could fall, pushing many homeowners into negative equity. Nationwide tripled the minimum deposit it required from borrowers from 5% to 15%, before reducing it to 10% when the government announced last month that stamp duty would be suspended.
Checking that buyers have saved money for their deposit themselves, rather than relying on their parents, is one way for banks to ensure they restrict lending to borrowers they consider to be less likely to experience problems in future paying back their debt.
Whilst a Nationwide spokesman said “This as a temporary measure which will remain under frequent review and fully gifted deposits are accepted on lending up to 85%”, the impact is thought to be significant as it will undermine most people’s understanding that they can and should be able to help their children get onto the housing ladder.
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