HSBC (HSBA.L) has stopped offering first-time buyers mortgages with 10% deposits in the UK, in the latest sign of the pressure on lenders amid high demand and economic uncertainty.
The move is likely to further limit options for would-be buyers with low deposits, setting back many younger people’s hopes of getting on the property ladder. The average first-time buyer needed a 20% deposit in the wake of the global financial crisis.
The bank’s UK arm has been grappling with soaring applications for such products. It said pent-up property demand since lockdown, stamp duty cuts and rivals cutting back on low-deposit mortgages were pushing up applications. HSBC was one of the few major UK lenders still offering such loans.
The bank said in a statement the demand had put its services under significant pressure, and announced buyers now need a 15% deposit unless they are existing customers switching rates.
“The recent significant uptick in applications has meant that we have not been able to consistently meet the high standards we set ourselves, which is not always a positive experience for our customers and can delay and put a property purchase at risk,” said Michelle Andrews, head of HSBC UK’s ‘Buying a Home’ team.
The changes came into effect today, but customers with appointments or applications already in place for mortgages with deposits under 15% will see such loans honoured.
Andrews said the change was only temporary, however, and said the bank hoped other lenders would return to such lending alongside HSBC.
“Mortgage market participation has been volatile at higher loan-to-values (LTVs) which has led to significant consequences on service levels and our colleagues for those who, like HSBC UK, have remained open for business at those higher LTVs.
“Temporarily reserving our mortgages at over 85% LTV for those switching rates only is not a decision we have taken lightly, but one we will be reviewing regularly.”
She added: “The easing of lockdown restrictions and changes to Stamp Duty have injected fresh impetus to first and second-time buyers who may have a smaller deposit and want to take advantage of that incentive.
It comes as new figures on Wednesday showed UK house prices hit a new all-time high in August, after the biggest monthly rise since 2004.
The average home sold for £224,123 ($299,82) in August, up 2% from £220,935 in July, according to data from mortgage lender Nationwide.
Miles Robinson, head of mortgages at online broker Trussle, said the shrinking of high loan-to-value products and stricter rules on parental deposits were “leaving many people locked out of the market.”
But he noted Virgin Money had recently begun offering 90% mortgages, though only on longer-than-usual seven- or ten-year fixed-rate deals.
“While it is positive to see higher LTV products being reintroduced, the number of products available overall is continuing to fall and those that are being reintroduced have much tighter criteria,” said Robinson.
“Lenders are right to be cautious in the current climate, however we would urge the industry and the government to think about ways to ensure the market remains accessible to all.”