Santander has launched a new five-year fixed-rate mortgage product allowing first-time buyers in the UK to borrow up to 98% of a property’s value, a move described by some brokers as “bold and significant.” The offering, announced on , marks the first time in years a major high street bank has exceeded the traditional 95% borrowing limit.
The mortgage requires a minimum deposit of £10,000 and has a maximum borrowing cap of £500,000. While the initiative aims to help more people onto the property ladder, significant restrictions apply, potentially limiting its accessibility to a relatively small segment of the first-time buyer market.
Restrictions and Exclusions
Several key limitations are attached to the 98% mortgage. The product is exclusively for first-time buyers, meaning both applicants must qualify as such in the case of a joint application. Crucially, the mortgage is not available for properties in Northern Ireland, nor is it offered to self-employed individuals. Flats and new-build homes are ineligible for the 98% loan-to-value (LTV) rate.
The maximum loan amount of £500,000 also presents a challenge, particularly in higher-priced regions. For example, the average house price in London stood at £539,000 in December, according to Halifax data, meaning the Santander mortgage would not cover the full cost of many properties in the capital.
Income Requirements and Comparison to Other Lenders
To borrow the maximum £500,000 at 98% LTV, applicants must earn more than £112,000 annually. This represents because Santander will lend a maximum of 4.45 times the borrower’s salary under this scheme. This contrasts with Santander’s own 95% LTV mortgages, which allow borrowing up to 5.5 times salary. Other lenders, including Nationwide and NatWest, now offer up to six times income for some borrowers.
Broader Market Context and Regulatory Pressure
Santander’s move follows similar, albeit smaller-scale, initiatives from other lenders. Skipton and Yorkshire building societies have previously offered mortgages allowing borrowers to access 100% and 99% of a property’s value, respectively. The broader trend reflects increasing pressure on banks to respond to calls from the City regulator and the Bank of England to improve housing affordability and accessibility.
The regulator and the Bank of England have been actively considering ways to help more people onto the housing ladder and to encourage banks to adapt to changing lifestyles and work patterns. This has led to several banks and building societies announcing increased income multiples in recent months.
Deposit Challenges and Market Response
Santander highlighted that its data indicates 52% of UK adults identify saving for a deposit as the biggest obstacle to homeownership. Last year, the average first-time buyer borrowing from Santander put down a deposit exceeding £85,000. The new 98% mortgage aims to address this challenge by significantly reducing the upfront capital required.
Aaron Strutt, at the broker Trinity Financial, suggested that Santander’s move “may well tempt other big lenders back into offering more sub-5% deposit mortgages to new customers.”
Concerns About Accessibility and Urban Markets
Despite the potential benefits, experts have raised concerns about the limited accessibility of the product. Paula Higgins, chief executive of the HomeOwners Alliance, noted that the strict eligibility criteria would likely restrict its uptake. “These restrictions raise real questions about how many first-time buyers can realistically benefit, particularly in higher-priced parts of the south-east where £500,000 may not go far,” she said.
The exclusion of flats from the scheme is particularly problematic, given that they represent a primary entry point to homeownership in many urban areas, especially London. Higgins added that this exclusion “is a worrying signal and risks putting ownership further out of reach for many.”
The launch of this 98% mortgage product represents a notable, though circumscribed, step towards addressing the challenges faced by first-time buyers in the UK. Its ultimate impact will depend on how widely It’s adopted and whether other lenders follow suit with similar, potentially less restrictive, offerings.
