Britain’s biggest building society is placing a ceiling of 85% loan-to-value (LTV) on mortgage lending to new customers – in a move that it said will help protect borrowers from potentially slipping into negative equity.
The step from Nationwide Building Society, which it described as “prudent”, applies to house purchase loans as well as re-mortgages.
It may come as a particular blow to first-time buyers, who often have only small amounts saved to get onto the property ladder and who have become used to a wide availability of low deposit deals in recent years.
This group could previously borrow up to 95% LTV from the Society, depending on how they applied.
However, existing mortgage customers will still be able to obtain loans at up to 95% LTV from Nationwide.
Nationwide said the change, which is due to “these unprecedented times and an uncertain mortgage market”, will happen from Thursday June 18.
Customers who already have a mortgage with Nationwide will be able to switch to a new mortgage deal regardless of their LTV – providing there is no increase in the loan-to-value.
Applications from existing mortgage customers moving home that are above 85% LTV will also be considered on a “like-for-like” LTV basis, Nationwide said.
The Society said that as a responsible lender, it needs to ensure borrowers can afford mortgage payments and are, as much as possible, protected against the potential for negative equity, should house prices decrease.
Negative equity happens when someone owes more on their home than its value.
Recent house price reports have painted a mixed picture of the housing market, with some suggesting that buyer demand has jumped in parts of England as its housing market reopened.
Some surveys have also suggested that house hunters are considering moves away from cities and to properties where they can work more from home.
Nationwide’s own house price index found that UK house prices fell by more than £4,000 in May. But another index, from Halifax, suggested a less severe price decrease in May of £506 on average.
With fewer property transactions taking place than usual, the Office for National Statistics (ONS) has temporarily paused its house price index.
The wider economic picture, with concerns about employment, incomes, household confidence and what lies ahead, will have an impact on the housing market and the prices that buyers are willing and able to pay.
Henry Jordan, director of mortgages at Nationwide Building Society, said: “The outlook for the mortgage market and house prices remains uncertain.
“As a responsible lender we must factor this uncertainty into our lending assessments, which is why we have taken the decision to reduce our maximum LTV for new business.
“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.
“We will continue to keep this situation under review and hope to return to lending at higher LTVs in the near future.”
Nationwide added that it is honouring any existing applications and those where someone has already booked a mortgage appointment.