Nationwide to penalise borrowers without 25% deposits
Mortgage borrowers with Nationwide will now have to save up for a 25% deposit in order to secure the best rate of interest from the lender.
Nationwide used to only charge people borrowing more than 90% of their property's value a higher rate of interest. But it has now tightened its criteria so that borrowers with less than a 25% deposit will only be eligible for higher rate products. The move, which Nationwide says is a result of market conditions, comes after Northern Rock capped the size of loans for its best rate loans, and after five lenders, including Alliance & Leicester, scrapped their 125% mortgages.
Matthew Carter, director of mortgages at Nationwide, said: "Like all lenders we have to adapt to changes in market conditions in order to be able to offer our borrowers the most competitive deals possible. At present the costs of funding in the market are high, house prices are stabilising and it is therefore appropriate for lenders to price for the additional risk attached to higher loan-to-value (LTV) loans.”
Carter added: “Unlike some other lenders, we do not impose a higher lending charge for customers taking a high percentage LTV therefore we are very transparent with our borrowers in the way that we manage risk."
The average LTV lent by Nationwide is around 50%, rising to 75% for first-time buyers. The society says that only a minority of customers will be affected by its move, but fears are rife that other lenders may follow suit.
Louise Cuming, head of mortgages at price comparison site moneysupermarket.com, said Nationwide won’t be the last lender to insist people have deposits before it offers them its best rates.
She added: "This sort of restricted lending has been happening in the buy-to-let market for a while. The fact that it is creeping into mainstream lending reflects the desire among some of the financial services industry to rein their lending in, and concentrate on boosting savings instead.
"… Unfortunately it is the first-time buyers who will suffer now, due in part to the cavalier approach to lending of some over the past few years.”
David Hollingworth, a mortgage specialist at London & Country, said borrowers with bigger deposits have always been able to get more competitive rates than those with little or nothing saved up.
He added: “People without deposits either have to save up or pay a higher rate. Remember that Nationwide is not the only lender out there, and it is always worth shopping around to find the best rate.”
Hollingworth says that borrowers without deposits can still grab a 100% mortgage from the likes of Bradford & Bingley and Cheltenham & Gloucester. Or, depending on their career, Scottish Widows and Bristol & West offer 100% deals for professionals.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.