Halifax slashes minimum deposit required to buy a new build home to just 5% – but first-time buyers still face loan-to-income hurdles

 Halifax has announced it is lowering the deposit required to buy new build houses, in a move that could help some first time buyers get a foot on the housing ladder.

The bank has halved the minimum deposit needed for a mortgage on new build properties from 10 per cent to 5 per cent. The change takes effect from 1 July. 

Based on the UK’s average house price of a £289,099, the minimum deposit needed would be £14,500. 

The deposit reduction also applies to shared ownership giving first time buyers a chance to own part of their property more affordably.

Putting a sufficient deposit together is often the biggest hurdle first time buyers face when trying to own their own homes.

Last week it was revealed that house prices in the UK are now more than seven times’ average earnings, putting housing affordability at the most stretched it has ever been. 

However, buyers will still need to satisfy lenders’ loan-to-income requirements, meaning they will only be able to borrow 4.5 times their salary in most cases. 

If they put down a smaller deposit, the loan will be larger and this could make that threshold harder to meet. 

Andrew Asaam, mortgage director, at Halifax, said: ‘This underlines our confidence in the new build market and our support for the UK construction industry. We have worked closely with the industry and listened to their needs to develop these changes.

‘Just as importantly, supporting new build homes supports the drive to net zero by making warmer, greener homes more accessible and attainable for potentially thousands of new buyers.’

Due to the higher standards required of homes built since 2012, the average Energy Performance Certificate (EPC) rating of properties built today is B or better, compared to D or worse for homes built before 1982.

Help to Buy is set to end in March 2023 and new applications will need to apply by October this year in order to still benefit from the scheme

This improved energy efficiency means owners of new build houses can save more than £500 per year on household bills per year, and attractive prospect as energy prices continue to rise.

Halifax will also accept a 5 per cent deposit on both new build flats and houses in shared ownership schemes run by housing associations.

Shared ownership allows buyers to initially own part of a property with the option to increase that share at a point in the future. The option is available where the share being bought is between 25 per cent and 90 per cent of the property’s value.

David Hollingworth, from broker L&C Mortgages, told This is Money that the move from Halifax was welcome.

‘Obviously we are used to 95 per cent LTV being broadly available in the wider mortgage market, but lenders have retained a more cautious approach for new builds.

‘I think there can be a premium on new builds, particularly with flats. They didn’t fare quite so well after the financial crisis because there has been a lot of flat building in city centres. There have remained lower LTV availability on new builds despite the ups and downs. It’s not a pandemic induced thing.

‘The announcement will also be really beneficial for those looking at shared ownership as a more affordable way to put down a small deposit.

Hollingworth adds that while Help to Buy technically finishes at the end of March, new applications will need to be in by the end of October.

He said mortgage lenders were likely looking at the impact the change will have and what new schemes can be put in place to fill the gap.

However, he warned there were still hurdles to clear for first time buyers looking at higher LTVs.

‘There are still issues and challenges, in any 95 per cent scenario while it’s useful that you will not have to build such a big deposit you will still have to meet the lender’s affordability criteria.

‘Hopefully we will start to see other lenders considering if they should be extending LTV limits.’

Anthony Codling, CEO of online property platform Twindig, also has concerns. While it helps with deposits, he said, it doesn’t address the income gap for would-be buyers. 

‘Solving the mortgage problem for one constraint (deposit) doesn’t necessarily solve the mortgage problem overall when other constraints (income multiples) are still in play,’ Codling said. 

‘In a world where house prices are divorced from wages, income-based approaches to home buying, will not reconcile the gap between home buyers and the homes they want to buy. 

‘If we want to champion homeownership, increase participation in the housing market and turn generation rent into generation buy, we need to reassess how we finance, purchase and own our homes.’

Best mortgage rates and how to find them

Mortgage rates have risen substantially as the Bank of England’s base rate has climbed rapidly.

If you are looking to buy your first home, move or remortgage, it’s important to get good independent mortgage advice from a broker who can help you find the best deal. 

To help our readers find the best mortgage, This is Money has partnered with independent fee-free broker L&C.

Our mortgage calculator powered by L&C can let you filter deals to see which ones suit your home’s value and level of deposit.

You can also compare different mortgage fixed rate lengths, from two-year fixes, to five-year fixes and ten-year fixes, with monthly and total costs shown.

Use the tool at the link below to compare the best deals, factoring in both fees and rates. You can also start an application online in your own time and save it as you go along.

> Compare the best mortgage deals available now

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