Halifax have sensationally announced today that they are lowering their minimum required deposit on new build properties from 10% to 5% throwing thousands of first-time buyers a lifeline. Changing their criteria to offer 5% deposit mortgages in the face of rising interest rates and a looming recession is a bold move, so why are Halifax changing their tune? Content and Communications Manager at Oportfolio Louis Mason weighs in.
New Build and 5% Deposit Mortgages
I started my mortgage career in new build mortgages. I worked for a mortgage brokerage that was one of the largest new build brokerages in the UK, working with home builders as their trusted mortgage broker across the UK. When I joined the business in 2016, 95% mortgages were pretty commonplace. My initial role was to receive mortgage enquiry calls from people who had been to view a new build home and had been passed our number by the site sales executive. I would talk to the potential buyer, take down their particulars including income, outgoings, and arguably most importantly the deposit they had available. The amount of deposit available, coupled with how much they could borrow from a lender based on their income would determine exactly what price property they could purchase.
Being part of a large mortgage network, the business I worked for had access to over 90 different mortgage lenders and a great deal of them offered low deposit mortgage products i.e. 5 and 10%. Alongside these lenders who offered 5% and 10% deposit mortgages were two mortgage schemes that were introduced by the government in 2013 designed to help people with low deposits purchase a property. These were called Help to Buy equity Loan and Help to Buy Mortgage Guarantee.
Each scheme was adopted by mortgage lenders and would be offered through specific products. The Help to Buy Mortgage Guarantee scheme enabled mortgage lenders to offer 95% mortgages with extra assurance from the British government so that the risk factor was reduced. This scheme in its original form ended in 2017 however its ending did not really have an affect on the 95% mortgage market.
The Help to Buy equity loan scheme was slightly different and proved to be very popular leading to it being extended several times however it is slated to finish next year after running for 10 years. The scheme essentially allowed potential buyers to purchase a new build property with as little as 5% of the value of the property as a deposit. The government would then lend you an extra 20% of the value of the property (in everywhere other than London) or 40% (inside of London) towards the purchase of the property so essentially you would only need a mortgage from the lender for 75% or 55% of the property. In 2021 this scheme was amended to only allow first-time buyers to benefit from 5% deposit purchases and now it is expected to cease in 2023 meaning that a huge area of the low deposit mortgage market will open up.
As a direct result of the COVID-19 pandemic in 2020, a lot of lenders increased their minimum deposit requirements to avoid any risk of lending to clients who might not be able to afford larger mortgages if their income was affected by the pandemic. Almost all the lenders who offered 95% mortgages increased their deposit to 10, 15, 20%+ and the ones who still offered 95% mortgages increased their rates to deter buyers.
Now that the pandemic is over or at least more manageable, we are seeing a lot more lenders relaxing their restrictions and providing more help to first-time buyers and others who are looking to buy but don’t have high incomes or high deposits. However, there is still a clear absence of 95% deposit mortgages. Cue Halifax.
What Are Halifax Offering?
Halifax have announced that they will lower their minimum mortgage deposit on new build houses to 5% from 10% on the 1st of July 2022.
Commenting on this game changing amendment to their criteria, Andrew Mason, Head of Strategic Partnerships – Housing, at Halifax, said: “Putting a sufficient deposit together is often the biggest hurdle first-time buyers face in getting on the housing ladder, this move will make that significantly easier for many. These changes could reduce the minimum deposit required on an average house to as little as £4000. This also underlines our confidence in the new-build market and our support for the UK construction industry. We have worked closely with the industry and listened to their needs to develop these changes.”
Will these changes from Halifax have a huge affect on the property market? Only time will tell. What I am most interested in seeing is how long it will take for other lenders who previously offered 95% new build mortgages to join in with Halifax and have a little more confidence in the new build and first-time buyer market.
If you or anyone you know is interested in looking into your mortgage options or are interested in new build properties, please give our friendly and experienced mortgage advisors a call today to see how we can help.