Santander Introduces 98% Mortgage for First-Time Buyers Amid Tight Restrictions
In a significant move within the UK mortgage market, Santander has launched a new product allowing first-time buyers to borrow up to 98% of a property's value. This initiative breaks the traditional 95% borrowing limit that has long been standard among high street banks. However, experts caution that the deal comes with very strict rules that may exclude many potential homeowners and property types, potentially limiting its overall impact.
Key Features and Eligibility Criteria
The mortgage is exclusively available to first-time buyers and is structured as a five-year fixed-rate loan. It requires a minimum deposit of £10,000, which is notably lower than many other deals on the market. The maximum loan amount is capped at £500,000. Despite these attractive terms, the product imposes several significant restrictions:
- It is not available for flats or new build properties.
- Properties in Northern Ireland are excluded from eligibility.
- Self-employed individuals cannot apply for this mortgage.
- For joint applications, both parties must be first-time buyers.
These exclusions have raised concerns among housing experts, who argue that they could severely restrict the number of buyers who can benefit from the scheme.
Market Context and Regulatory Influence
Santander's launch comes at a time when the City regulator and the Bank of England are actively exploring ways to help more people get onto the housing ladder. There is a growing push to encourage banks to adapt their lending practices to reflect changes in how people live and work. This regulatory pressure has already begun to influence the UK mortgage market, with several banks and building societies recently introducing products that allow for higher loan-to-value ratios.
While Santander is the largest lender to offer a mortgage above 95%, it is not the first. For instance, the Skipton and Yorkshire building societies have previously offered deals allowing borrowers to access 100% and 99% of a property's value, respectively. Santander's entry into this space is seen as a bold and significant step that could encourage other major lenders to follow suit.
Expert Analysis and Potential Limitations
Paula Higgins, Chief Executive of the HomeOwners Alliance, welcomed the announcement but highlighted the practical challenges posed by the restrictions. She noted that the exclusion of flats is particularly problematic in urban areas like London, where flats are often the primary route into home ownership for first-time buyers. Higgins stated, "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."
Additionally, the income requirements for borrowing the maximum £500,000 are steep. Applicants would need to earn more than £112,000 annually, as Santander will lend a maximum of 4.45 times the borrower's salary under this deal. In contrast, other lenders, including Nationwide and NatWest, now offer mortgages that allow borrowing up to six times income for certain homebuyers.
Broader Implications for the Housing Market
Santander's data indicates that 52% of UK adults view saving for a deposit as the biggest barrier to buying a property. Last year, the average first-time buyer borrowing from the bank put down a deposit exceeding £85,000. The new 98% mortgage aims to address this challenge by reducing the deposit burden. However, the stringent criteria mean that its effectiveness may be limited.
Aaron Strutt of Trinity Financial suggested that Santander's move could "tempt other big lenders back into offering more sub-5% deposit mortgages to new customers." This could signal a shift in the market towards more accessible lending options, though the current exclusions highlight ongoing barriers for specific buyer groups and property types.
Overall, while Santander's 98% mortgage represents a notable innovation in first-time buyer finance, its strict rules underscore the complex balance between expanding access to home ownership and managing lending risks in a volatile housing market.
