Key Highlights
- Santander launches mortgage with just 2% deposit.
- Mortgages at LTV over 95% are making a comeback.
- Banks aiming to help first-time buyers.
- New mortgages could increase home ownership rates.
The 2% Deposit Mortgage: A Game-Changer for First-Time Buyers?
You might think this is new, but Santander has just launched a mortgage that allows borrowers to put down as little as 2% of the property’s value. This isn’t some wild idea; it’s part of an industry trend aiming to make home ownership more accessible.
A Return to High-Leverage Mortgages
Mortgages with LTV (Loan-to-Value) over 95% were widespread before the 2008 financial crisis. These loans largely disappeared when lending rules tightened, but they are making a comeback as banks and regulators encourage innovation in this space.
The Santander Offer
Under Santander’s new deal, those who can put down at least £10,000 could borrow up to £500,000, effectively a 98% loan. The rate is higher than those available for larger deposits; the Co-op Bank offers a lower rate of 4.47%, and Nationwide Building Society’s is even higher at 4.53%. A £200,000 loan would cost you about £1,191 per month on Santander’s deal compared to around £1,108 for the Co-op Bank.
Industry Context
The UK’s first-time buyer challenge is real. According to a poll by the Building Societies Association, 64% of respondents cited saving enough for a deposit as their biggest barrier to buying a home. The second and third barriers are not being able to borrow enough and affordability issues.
Government Goals
This move from Santander aligns with government aims to boost homeownership and economic growth. While the share of new mortgages above 95% LTV is still small (0.59% in the third quarter), it’s a significant step towards making home ownership more attainable for many first-time buyers.
Expert Opinions
Polling by the Building Societies Association shows that helping deposit challenges is welcomed, but Paul Broadhead from the association cautions against relying solely on larger loans with lower deposits. He points out the importance of sensible borrowing rules to prevent negative equity and keep the housing market stable.
Conclusion
Santander’s 2% deposit mortgage might be a stepping stone, but it’s part of an industry push to address first-time buyer challenges. Whether this trend continues or not remains to be seen, but for now, it offers hope to those looking to get on the property ladder.
