Limit put on deposits from Bank of Mum and Dad
A blow for first time buyers as Nationwide puts the brakes on the Bank of Mum and Dad
August 4, 2020
If you’re a first time buyer, times are tough. But this week, Britain’s second-biggest mortgage lender cracked down on buyers who need help from the Bank of Mum and Dad to come up with their deposit.
The biggest hurdle for first time buyers at the moment is the retraction of the 95% mortgage. According to an analysis by Moneyfacts.co.uk, there are currently just 20 mortgages available for buyers with the smallest deposits of 5%. This represents a 95% drop since the start of the coronavirus crisis.
The availability of mortgages up to 90% LTV and beyond also remains extremely limited.
This difficult climate meant the Bank of Mum and Dad was the obvious place for first time buyers to turn to boost their deposit and access a mortgage.
But Nationwide’s new rules mean first-time home buyers cannot rely on the “Bank of Mum and Dad” stumping up most of the cash for their deposit. The controversial new policy states that borrowers looking to get a mortgage that will cover 90 per cent of the cost of their home 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 per cent loan-to-value or lower.
With around 40 per cent of first-time buyers thought to have received financial help from family members last year, the change could affect significant numbers of potential homeowners.
Nationwide has not commented on the reasons behind the rule but it’s likely down to financial uncertainty as a result of the coronavirus pandemic. Ensuring homebuyers aren’t dependent on their parents for a deposit is, arguably, one way for Nationwide to restrict lending to those at lower risk of struggling to repay debt.
Commentators suspect this will have a significant impact on first time buyer numbers over coming months – even with the positive impact of the stamp duty holiday that will allow some first time buyers to wield a larger deposit.
What now for the Bank of Mum and Dad?
The good news is there are a number of other lenders that will let you use gifted deposits.
There are also a number of other schemes – from guarantor mortgages to linked accounts – that allow parents to give their children a leg up on the ladder.