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Nationwide, the UK’s second-largest mortgage lender, recently announced a policy change, implementing restrictions on first-time buyers trying to get on the housing ladder. For these buyers, the changes are two-fold: 1) 75% of their deposits must have been saved independently, and 2) they must be buying properties at least 2 years old.
With around 40% of first-time buyers thought to have received financial help from family members last year, this policy change could have a significant impact on young people’s abilities to access home ownership. Borrowing or receiving a gift from parents to help contribute towards a deposit – utilising the so-called ‘Bank of Mum and Dad’ – will no longer be accepted, as first-time buyers who are looking to get a mortgage covering 90% of the cost of their home must prove that no more than a quarter of their deposit was gifted to them (although inheritance is acceptable).
With Covid-19 already casting economic uncertainty across the housing market, it will be important to keep an eye on whether this type of policy becomes a trend. First-time buyers already struggle to put together a deposit, and if this trend continues with other lenders, the housing market is likely to stagnate in the medium-term as people will find it hard to get on the ladder and thus propel those looking to move up.
However, while this type of policy may cast a bleak outlook for first-time buyers, landlords may find themselves in an opportune position. With first-time buyers prohibited from accessing family finances to fund their deposits, those who cannot afford to buy will be forced to rent, creating higher rental demand that stimulates the buy-to-let sector. This demand could be further exacerbated as a consequence of the increase in stamp duty that foreign investors have to pay when purchasing property in the UK: the tax hike to a 2% surcharge, which comes into effect from April 2021, has created uncertainty for developers, leading to a potential shortage in the rental market.
In this scenario, would be buy-to-let investors should look to complete on purchases before the end of the Stamp Duty Land Tax cut at the end of March 2021, to benefit as much as possible from the Government’s economic stimulus.