Santander Breaks Tradition with 98% Mortgage for First-Time Buyers
In a bold move aimed at helping more people onto the housing ladder, Santander has launched a mortgage that allows first-time buyers to borrow up to 98% of a property's value. This breaks the traditional 95% borrowing limit that has long been standard among major high street banks. The deal is a five-year fixed-rate loan, requiring a minimum deposit of £10,000 and capping the maximum loan at £500,000.
Strict Eligibility Criteria Raise Concerns
Despite the potential benefits, experts have highlighted that the mortgage comes with "very strict" rules that could exclude many prospective buyers. The product is not available for flats, new build homes, or any properties located in Northern Ireland. Additionally, self-employed individuals are barred from applying, and for joint applications, both parties must be first-time buyers.
Paula Higgins, chief executive of the HomeOwners Alliance, noted that while a 98% mortgage from a major lender could make a real difference for some, the eligibility criteria are restrictive. "Taken together, these restrictions raise real questions about how many first-time buyers can realistically benefit, particularly in higher-priced parts of the south-east where £500,000 may not go far," she said.
Impact on Urban Homeownership
The exclusion of flats is particularly significant, as they are often the main route into home ownership in urban areas like London. Higgins added that this "is a worrying signal and risks putting ownership further out of reach for many." In London, where the average house price was £539,000 in December according to Halifax, the £500,000 loan cap presents a challenge for many would-be buyers.
Broader Market Trends and Regulatory Context
Santander's move comes as the City regulator and the Bank of England explore ways to help more people onto the housing ladder and encourage banks to adapt to changing lifestyles. This has already led to shifts in the UK mortgage market, with several lenders recently offering higher loan-to-value ratios. For instance, Skipton and Yorkshire building societies have provided deals allowing borrowing of 100% and 99% of a property's value, respectively.
Aaron Strutt of Trinity Financial suggested that Santander's initiative "may well tempt other big lenders back into offering more sub-5% deposit mortgages to new customers." However, those hoping to borrow the maximum £500,000 will need an annual income exceeding £112,000, as Santander limits lending to 4.45 times salary for this product. In contrast, first-time buyers borrowing up to 95% from Santander may access up to 5.5 times their salary, and other lenders like Nationwide and NatWest now offer up to six times income for some buyers.
Deposit Savings Remain a Key Barrier
Santander's data indicates that 52% of UK adults view saving for a deposit as the biggest obstacle to homeownership. Last year, the average first-time buyer borrowing from the bank put down a deposit of over £85,000. The new mortgage aims to address this by reducing the deposit requirement, but its narrow eligibility may limit its effectiveness in tackling the broader housing affordability crisis.
