HSBC is the latest bank to restrict sales of its low-deposit 90% mortgages in a move that will leave many first-time buyers struggling to find a loan.
The lenders have said that they have temporarily put a stop to approving mortgages worth more than 85% of the value of a home. The purpose of this is to assist with processing a backlog of low-deposit mortgage applications.
Michelle Andrews, HSBC UK’s head of buying a home, told The Guardian it was “not a decision we have taken lightly but one we will be reviewing regularly”.
400 mortgage advisers who work for HSBC are experiencing a serious backlog of applications. In addition, most customers are having to wait up to four weeks for a meeting.
Andrews said, “The recent significant uptick in applications has meant that we have not been able to consistently meet the high standards we set ourselves, which is not always a positive experience for our customers and can delay and put a property purchase at risk,”
This solution is unusual for banks who want to reduce demand. The typical way is to raise interest rates or change product criteria, such as requiring a higher deposit or by toughening up affordability constraints.
Presently, Nationwide is the only option for first-time buyers as they are still offering 90% mortgages. Their reports are saying that housing prices are at an all-time high. There is, however, strict criteria for the approval of mortgages that are 90% of the home’s value.
Virgin Money relaunched into the low-deposit market, but approved mortgages only if customers agreed to a minimum seven-year fixed period.
One senior HSBC banker told The Guardian. “We can’t carry the market on our own, the operational strain on us is huge.” However, the banker insisted that the mortgage market remains sound, with arrears and defaults still low.
Discussions surrounding the difficulties of getting a mortgage post-lockdown have been happening since July. It was noted that borrowers seeking mortgages at high loan-to-value could have expected to meet several new requirements before getting access to credit, like providing more documentation and proof of business solvency.
Chris Sykes of the brokers Private Finance added: “Given the restrictions at this end of the market, it is no surprise that those lenders still offering higher LTV products are facing overwhelming levels of demand. If buyers require a mortgage at that level and need to move quickly they may struggle at this point in time or may face higher rates.”