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

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

The bank halved the minimum deposit required for mortgages on new properties from 10 percent to 5 percent. The change is effective from July 1.

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

Deposit reduction also applies to shared ownership which gives first time buyers the opportunity to own a portion of their property at a reasonable cost.

Putting together an adequate deposit is often the biggest hurdle that first time buyers face when trying to own their home.

Last week it was revealed that house prices in the UK are now more than seven times the average income, putting housing affordability as strained as it has ever been.

However, buyers will still need to meet the lenders loan-to-income requirements, which means they will only be able to borrow 4.5 times their salary in most cases.

If they make a smaller deposit, the loan will be larger and that may make it more difficult to meet that limit.

Halifax Mortgage Director Andrew Assam said: “This underscores our confidence in the new construction 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 important, supporting new home construction supports the trend to net zero by making warmer, greener homes affordable and achievable for thousands of potential new buyers.

Because of the high 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.

Help to Buy is due to end in March 2023 and new applications will need to be submitted by October this year in order to continue to benefit from the scheme.

Help to Buy is due to end in March 2023 and new applications will need to be submitted by October this year in order to continue to benefit from the scheme.

This improved energy efficiency means new homeowners can save over £500 a year on house bills annually, attractive prospects as energy prices continue to rise.

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

Shared Ownership allows buyers to own part of a property initially with the option to increase this share at some point in the future. The option is available when the share being purchased is between 25 percent and 90 percent of the value of the property.

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

“Obviously we are used to 95 per cent LTV being widely available in the broader mortgage market, but lenders have kept a more cautious approach to new builds.

“I think there can be a premium on new builds, especially with apartments. They didn’t do well after the financial crisis because there were a lot of flat buildings downtown. LTV availability remained low in new builds despite the fluctuations. It’s not something that causes pandemic.

The advertisement will also be useful to those looking at shared ownership as an affordable way of making 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 likely looking at the impact of the change and what new plans could be put in place to bridge the gap.

However, be warned, there are still hurdles for first-time buyers looking for top-of-the-line LTVs.

There are still issues and challenges, in any 95 percent scenario, while it is beneficial to not have to create such a large deposit, you still have to meet the lender’s affordability criteria.

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

Anthony Codling, CEO of online real estate platform Tweendig, also has concerns. He said that while it helps with deposits, it does not address the income gap for potential buyers.

“Solving the mortgage problem of one constraint (deposit) does not necessarily solve the mortgage problem in general when the other constraints (income multiples) are still in play,” Codling said.

In a world where home prices are decoupled from wages, income-based approaches to home buying will not bridge the gap between homebuyers and the homes they want to buy.

“If we want to defend home ownership, increase participation in the housing market and turn generation rent into generational purchase, we need to reassess how we finance, buy and own our homes.”

Best mortgage rates and how to find them

Mortgage rates skyrocketed as the Bank of England’s base rate rose rapidly.

If you are looking to buy your first home, move or remortgage, or are a buy-to-let owner, it is important to get good 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 an independent, no-fee L&C broker.

The Mortgage Calculator backed by L&C allows you to filter deals to see which ones fit your home value and deposit level.

You can also compare different durations of mortgage rates, from two-year fixes, to five-year fixes and ten-year fixes, displaying monthly and total costs.

Use the tool at the link below to compare the best deals, factoring in fees and prices. You can also start an online application on your own time and save it as you move forward.

> Compare the best mortgage deals available now

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