Borrowers hoping for a Halifax mortgage will now have to save for a 25% deposit or pay a premium.
Britain’s biggest mortgage lender has introduced a three new pricing tiers, with the best value mortgages only available to people able to put down 25% of a property’s value.
Previously, only a 10% deposit was needed to secure the best interest rate from the bank. Halifax will continue to offer mortgages between 90% and 95% of a property’s value, but these will attract a higher headline rate.
The move follows the second largest lender in the UK, Nationwide, introducing a tiered structure back in February which similarly demands a 25% deposit for its most competitive products.
Halifax’s changes come into force on Monday 7 April and also apply to Bank of Scotland and Intelligent Finance mortgage deals.
Borrowers unable to put down a 25% deposit will pay an extra 0.14% on their headline rate. However, those with more than 25% to put down as a deposit will pay 0.1% less.
The move does, however, quash rumours that the bank could follow in the footsteps of First Direct by suspending lending for new customers.
The move from Halifax is, in part, a reaction to Nationwide’s move in February.
However, it is also an indication of the outlook for house prices.
Ray Boulger, of brokerage John Charcol, says mortgages of up to 95% of a property’s value are far riskier today than they have been in the past.
He explained: “A 95% mortgage today could be a 100% mortgage tomorrow in a climate where house prices are falling.
“I don’t believe prices will go into freefall but they will drift this year, and as this happens lenders’ equity in properties where mortgages cover 95% of the value will also fall.”
The International Monetary Fund recently warned that houses in the UK are overvalued by 30% and face a massive price correction. And the latest housing market figures from Nationwide show house prices fell for the fifth consecutive month in March bringing the annual rate of growth to its lowest level since 1996.
Boulger believes that it is good news that Halifax continues to offer mortgages up to 95% as this will support the first-time buyer market.
The survival of first-time buyers is essential to the housing market at large, as if fewer people come into the market there will be fewer opportunities for existing home owners to sell their property and move up the ladder.