Halifax lowers the minimum deposit required to buy a new construction home to just 5%

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

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

Based on the median UK house price of £289,099, the minimum deposit required would be £14,500.

The deposit reduction also applies to shared ownership, giving first-time buyers the opportunity to own part of their property more affordably.

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

Last week it was revealed that UK house prices are now more than seven times average income, putting housing affordability at an all time low.

However, buyers will still need to meet lenders’ loan-to-income requirements, which means 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, Halifax’s director of mortgages, said: ‘This underscores 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 its needs to develop these changes.

“Equally important, support for new construction homes supports the drive toward net zero by making warmer, greener homes more accessible and affordable to thousands of potential new homebuyers.”

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

The help to buy will end in March 2023 and new applications must be submitted before October this year to continue to benefit from the scheme.

The help to buy will end in March 2023 and new applications must be submitted before October this year to continue to benefit from the scheme.

This improved energy efficiency means new build homeowners can save over £500 per year on household bills per year, and an 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 co-ownership schemes run by housing associations.

Shared ownership allows buyers to initially own a portion of a property with the option to increase that interest at a future time. The option is available when the interest being purchased is between 25 and 90 percent of the value of the property.

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

“Obviously, we’re used to 95 percent LTV being widely available in the broader mortgage market, but lenders have maintained a more cautious approach to new construction.

“I think there may be a premium on new construction, particularly with floors. They didn’t do as well after the financial crisis because there has been a lot of housing construction in city centers. Lower LTV availability in new construction has been sustained despite the ups and downs. It’s not a pandemic-induced thing.

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

Hollingworth adds that while help to buy technically ends at the end of March, the new apps should be available by the end of October.

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

However, he cautioned that there were still hurdles to overcome for first-time buyers looking for higher LTVs.

“There are still issues and challenges, in any 95 percent scenario, while it’s helpful that you don’t have to build as large a warehouse, you’ll still have to meet the lender’s affordability criteria.

“Hopefully, we’ll start to see other lenders considering whether they should extend the LTV limits.”

Anthony Codling, CEO of online property platform Twindig, also has concerns. While he does help with deposits, he said, he doesn’t address the income gap for prospective buyers.

“Solving the mortgage problem for one (deposit) constraint doesn’t necessarily solve the overall mortgage problem 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 defend home ownership, increase housing market share, and turn generation rent into generation purchase, we need to reevaluate how we finance, buy, and own our homes.”

The best mortgage rates and how to find them

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

If you’re thinking about buying your first home, moving or remortgaging, or are a buy-to-let landlord, 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 broker L&C.

Our L&C-powered mortgage calculator can allow you to filter offers to see which ones best match your home value and deposit level.

You can also compare different fixed-rate mortgage durations, from two-year arrangements to five-year arrangements to ten-year arrangements, with monthly and total costs displayed.

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

> Compare the best mortgage deals available now

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