Santander Introduces 98% Mortgage for First-Time Buyers with Strict Criteria
In a significant move for the UK housing market, Santander has launched a new mortgage product allowing first-time buyers to borrow up to 98% of a property's value. This marks the first time in years that a major high street bank has offered a loan-to-value ratio above 95%, aiming to address the deposit-saving barrier cited by 52% of UK adults as their main obstacle to homeownership.
Key Features and Eligibility Requirements
The five-year fixed-rate deal requires a minimum deposit of £10,000 and sets a maximum borrowing limit of £500,000. These thresholds are designed to target specific segments of the market, but come with notable restrictions. Self-employed applicants are currently excluded from accessing this 98% deal, and the product is not available for properties in Northern Ireland.
In joint applications, both parties must be confirmed as first-time buyers to qualify. Lending is capped at 4.45 times the applicant's salary, which is more restrictive than higher multiples offered by other mortgage products. To borrow the full £500,000 limit, an individual or couple would need a combined annual income exceeding £112,000.
Property Exclusions and Market Implications
Strict property restrictions apply, as the mortgage is unavailable for the purchase of flats or new-build homes. Industry experts warn that this exclusion could particularly hinder urban buyers, who often take apartments as their first step onto the property ladder. Consumer advocates note that the £500,000 cap may be problematic in areas such as London, where average house prices frequently exceed this limit.
Analysts highlight that high loan-to-value mortgages carry a greater risk of negative equity if house prices were to fall. Borrowers are encouraged to consider overpayments where possible to build equity and move toward more competitive interest rate tiers over time.
Competitive Landscape and Future Outlook
While Santander is the largest lender to go above 95% in recent years, building societies like Yorkshire and Skipton already offer 99% or 100% deals, respectively. This new competition is expected to tempt other major high street rivals back into the low-deposit mortgage market, potentially increasing options for aspiring homeowners.
Despite the bold move, the "strict rules" mean many aspiring homeowners will still find themselves excluded from the scheme. The product's impact may be limited by its eligibility criteria and property exclusions, underscoring the ongoing challenges in the UK housing market for first-time buyers.
