• Nationwide and other mortgage lenders tripled down-payment requirements last month, limiting loans to 85% of property value
  • Lenders blamed uncertainty created by the coronavirus pandemic for the decision
  • HSBC was alone among major lenders in making 90% loans

Nationwide Building Society, which last month limited mortgages for high-risk borrowers, Monday said it would begin offering 90% mortgages to first-time buyers in the United Kingdom in response to pent-up demand produced by the coronavirus pandemic.

Before the pandemic struck, a borrower could obtain a 95% loan.

CEO Joe Garner told the Financial Times the Bank of England has been encouraging such loans and the lender expects “significant volumes.” The loans will be available beginning July 20.

Garner said housing prices have fallen 3 percent since Natonwide limited high-risk lending last month and were 0.8% lower than last year – the first time in eight years the index has fallen. The government’s decision to eliminate the stamp duty on the first 500,000 pounds ($629,000) of transactions in England and Northern Ireland for at least the rest of the year also helped. The previous threshold added an average 4,500 pounds ($5,663) to the cost of a home that cost 125,000 ($157,300) to 500,000 pounds and an average 15,000 pounds (nearly $18,900) to the cost of more expensive homes.

Last month Nationwide and other mortgage lenders set maximum loans at 85%, tripling down-payment requirements, citing uncertain property value outlooks. The down-payment requirement kept many first-time buyers, especially in London where prices are high, out of the market. At the time, Henry Jordan, Nationwide director of mortgages, said the building society’s first priority was keeping people in their homes.

Social distancing rules also made it difficult to show properties.

HSBC was alone among major lenders continuing to offer 90% loans, but funds ran out quickly on a daily basis, Home and Property reported.

“First-time buyers are vital to breathing life into the housing market and economy. We understand one of the biggest barriers to homeownership is raising a deposit,” Jordan said.

“The ability for lenders to offer lower deposit mortgages to first-time buyers is critical to helping the market recover more quickly,” said Miles Shipside, commercial director at property website Rightmove.

“There’s been record demand for property on Rightmove since the market reopened which has been boosted even further by the stamp duty announcement, all of which should help activity levels over the coming months.”