Lender says wider Save to Buy scheme will ease market for homeowners struggling with equity
Home movers with little equity in their property are being offered a new range of 95% mortgages, provided they commit to making regular savings for at least six months.
Nationwide building society is extending its Save to Buy mortgage to homeowners, who will be able to take out a mortgage with a deposit of just 5% after putting at least £50 a month into a linked savings account for six months.
So far 25,000 potential first-time buyers have opened Save to Buy accounts and Nationwide said extending the deal would free up starter homes for those wanting to get on the property ladder.
From 4 January homeowners who sign up to the deal can choose to pay into a tax-free Save to Buy Isa or a Save to Buy account, both paying interest at 2% AER on balances up to £20,000. They must pay in at least £50 a month, but can take three months off during a rolling 12-month period.
Once they have enough money for a 5% deposit, they can access four fixed-rate mortgages: a three-year 5.69% fixed-rate with a £900 fee, a three-year 5.99% fixed-rate with no fee, a five-year 5.99% fixed-rate with a £900 fee or a fee-free five-year fixed-rate at 6.19%. Two two-year deals are available at a 90% loan-to-value ratio.
There is a cashback payment of up to £1,000 on completion, based on the amount saved. Savings balances between £2,500 and £4,999 qualify for £250 cashback, those between £5,000 and £9,999 earn £500 and balances of £10,000 and more qualify for the full £1,000.
Tracie Pearce, Nationwide’s head of mortgages, said: “Save to Buy for home movers gives borrowers the assistance they need to buy their next home. And helping borrowers move up the property chain can help free up homes lower down the chain for those borrowers looking to get on the first rung of the ladder.”
The 95% mortgage market has eased slightly in recent months, but the choice is much more limited than before the housing market downturn began.
According to Nationwide, of the 42 mortgages currently available to home movers with a 5% deposit to put down (who are not buying through the government’s New Buy scheme), 39 are available only to those living in certain areas or require a guarantor, limiting some borrowers to a choice of just three.
Mark Harris, the chief executive of mortgage broker SPF Private Clients, said extending the scheme made sense, as it was not just first-time buyers who were struggling.
“The trapped second-steppers, who are already in a property but want to move up the ladder to a larger one, are finding that falling property values mean they don’t have substantial equity to call upon,” he said.
“The cost of moving, in particular paying stamp duty, can make it very difficult to get together the necessary funds when the high cost of living makes saving tricky.”
However, Harris advised borrowers not to assume the Nationwide loan was the most competitive for their circumstances.
“Borrowers should ensure they compare what is on offer with the rest of the market and not assume they are getting the best deal,” he said.
At 95% loan-to-value, the rates on Nationwide’s deals are similar to those available to movers elsewhere.
Leeds building society’s five-year fixed-rate loan has a rate of 5.99%, while Hanley Economic building society is charging 5.49% for five years for in-branch applicants.