Debate Magazine

"Supporting the Housing Market"

Posted on the 31 March 2020 by Markwadsworth @Mark_Wadsworth

From the BBC:
On Tuesday, Nationwide - one of the UK's biggest lenders - effectively pulled out of new deals... Nationwide will now only offer home loans to those with 25% equity or more.
It rules out first-time borrowers or existing homeowners with little equity in their home... [this] will allow it to "focus on supporting existing mortgage members, while continuing to process ongoing applications", it said.
Nationwide blamed "an extremely high number of enquiries about existing mortgages and ongoing applications... That is why we have taken this decision on a temporary basis although, by continuing to offer home loans up to 75% LTV [loan to value], we can continue supporting the housing market."
Other lenders that have taken similar action include Santander and Skipton Building Society but many have gone further, by reducing the loan-to-value ratio to 60%.

On a practical level, you can see why they have retrenched a bit. By "supporting the housing market", what they actually mean is "keeping house prices as high as possible".
In the short term, if potential sellers expect things to return to normal and prices to rebound, then they will hold off selling and we would expect the number of transactions to plummet, Zoopla says by as much as 60%.
But... what if all lenders increased the deposit requirement to 25% or even 40% (call it 30% on average) on a permanent basis? First time buyers have a fixed amount of cash to put down as a deposit, and sooner or later, the Bank of Mum & Dad will run out of things to remortgage. According to this, average FTB deposits are 15% of selling prices. The deposit is a limited/fixed amount of cash, so we would expect selling prices to halve.
Which would be great news for every tenant in their twenties and thirties!

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