Nationwide, Britain's second-largest mortgage lender, has announced a significant relaxation of its lending criteria for first-time buyers. This move comes as mortgage rates in the UK show signs of decreasing, potentially easing the path to homeownership for many aspiring buyers.
The building society, founded in 1846, has increased its income multiple from 5.5 to 6 times annual earnings under its Helping Hand scheme. This change means a couple with a combined income of £50,000 could now borrow up to £300,000, an increase of £75,000 from the previous limit.
This adjustment arrives at a crucial time for the UK housing market. The average house price for first-time buyers stands at £226,794 nationwide, rising to £452,797 in London, according to Nationwide's own index. These figures highlight the significant regional variations in property prices across the country.
First-time buyers face numerous challenges in today's market. The average age of a first-time buyer in the UK is now 32, reflecting the difficulties many face in saving for a deposit while managing living costs. The average deposit required has reached around £59,000, a substantial sum for many young professionals.
The mortgage landscape has seen significant changes in recent years. On September 1, 2024, the average two-year fixed rate stood at 4.24%, but has since increased to 5.45%. Five-year fixed rates have also risen from 4.33% two years ago to 5.12% currently. These fluctuations demonstrate the volatile nature of the mortgage market.
David Hollingworth of L&C Mortgages commented on the changes:
"Building an adequate deposit is hard enough especially when the available mortgage borrowing is capped, and prices remain high. Opening the potential for higher borrowing amounts for the right borrowers will help target the twin challenges that first-time buyers face across the UK."
Nationwide has also increased its maximum loan sizes, including for those with a deposit of 10% or less, from £500,000 to £750,000. This change could particularly benefit buyers in high-cost areas like London and the South East.
In addition to these changes, Nationwide has introduced new mortgage products aimed at first-time buyers. They are now offering a five-year fixed rate at 95% loan-to-value (LTV) at 4.99% with a £999 fee, becoming the first lender to offer a sub-5% rate for buyers with a 5% deposit. They also have a five-year fixed rate at 90% LTV at 4.49% with the same fee.
The impact of the Helping Hand scheme has been significant since its introduction in April 2021. The average loan size for first-time buyers without the scheme is £168,699, while those benefiting from Helping Hand have an average loan size around 60% higher at £269,169.
These changes come as the housing market shows signs of increased activity among younger buyers. Research by Savills indicates that first-time buyers accounted for nearly a quarter of housing market spending in the three months leading up to July 2024, their highest market share in eight years.
The Bank of England's recent decision to hold its base rate at 5% has raised hopes for further mortgage rate reductions. Market expectations suggest at least one more rate cut before the end of the year, which could lead to even more favorable mortgage terms for buyers.
As the UK's mortgage debt totals £1.6 trillion and with over 11 million mortgages outstanding, these changes by Nationwide could have far-reaching implications for the housing market. The move may prompt other lenders to review their own lending criteria, potentially leading to increased competition and better deals for consumers.