Nationwide, the UK’s biggest building society has announced its plans to triple the minimum mortgage deposit required for first-time buyers in response to the Coronavirus crisis.
COVID-19 has meant that the housing market had to effectively ban sales for six weeks whilst lockdown was its tightest. Since restrictions have eased over the last few weeks, buyers and sellers are back trying to decide new prices ahead of sales as brokers claim there’s an increase of inquiries.
Banks and building societies are getting nervous about prices, leading to a spike in "down valuations," when lenders value a property at less than the buyer has agreed to pay, according to Andrew Montlake, managing director of mortgage broker Coreco.
Nationwide have announced their deposits will increase from Thursday due to "these unprecedented times and an uncertain mortgage market". Nationwide made the move in case house prices fall and buyers go into negative equity - when the debt is greater than the value of the property. If there happens to be a downward turn in house prices, recent buyers with big loans will be in serious danger of slipping into negative equity.
This decision has also been made with their customers’ best interests in mind as the work situations of many have been affected during the pandemic and some customers may not be able to make repayments, with fear of future and current job loses. First-time buyers are most significantly affected because they often have smaller amounts saved to get on the property ladder.
After the decision to re-open the housing market, Nationwide have moved the limit of how much you can borrow, with the aim that it will bring everyone down to earth and "protect" us from risking too much to get a dream home. The building society has reduced the proportion of a home's value that it is willing to lend from 95% to 85%.
For example, this now means if a property costs £100,000, a new buyer would now need a £15,000 deposit rather than a £5,000 deposit.
Nationwide released a statement from Henry Jordan, Nationwide director of mortgages, saying that: "Our priority at this time must be to help members keep their homes. As such, we need to ensure our members can afford their repayments, while doing what we can to protect them from falling into negative equity".