HSBC has become 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.
While HSBC has stopped short of pulling 90% mortgages off the shelf, it said it was “temporarily reserving” mortgages worth more than 85% of the value of a home to customers switching interest rates. It is meant to help the lender process a backlog of low-deposit mortgage applications.
Michelle Andrews, HSBC UK’s head of buying a home, said it was “not a decision we have taken lightly but one we will be reviewing regularly”.
The bank’s 400 mortgage advisers are currently flooded with applications from buyers, with customers forced to wait as long as three to four weeks to be interviewed by HSBC. Meanwhile, the bank has only opened a daily window of as little as half an hour in the morning for brokers to apply for loans before the daily allocation of money runs out.
HSBC – which accounts for about 6.8% of the UK’s mortgage market – had been reviewing the issue on a daily basis as it tried to find a responsible way to curb high demand for its low-deposit mortgages.
“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,” Andrews said.
Typically, banks wanting to reduce demand either raise interest rates or change product criteria, such as requiring a higher deposit or by toughening up affordability constraints.
Since lockdown, other major mortgage lenders have shied away from 90%-plus lending, fearful of falling house prices and arrears. However, the surprise rise in the market has caught lenders unaware, with HSBC faced with many more applicants than expected from first-time buyers.
The introduction of HSBC’s restrictions – which were first reported by the Guardian – will leave many first-time buyers with only Nationwide as an option. But Nationwide has strict criteria for its 90% loans, which will leave many potential buyers unable to find a loan. There was a glimmer of hope for first-time buyers, with Virgin Money relaunching into the low-deposit market – but only if customers agree to a minimum seven-year fixed period.
“We can’t carry the market on our own, the operational strain on us is huge,” one senior HSBC banker told the Guardian. However, the banker insisted that the mortgage market remains sound, with arrears and defaults still low.
Sam Harhat, the head of financial services at Andrews Property Group, said: “For 75% loan-to-value mortgages and below, there is a huge amount of lender competition but at higher LTVs finding a lender is like looking for a needle in a haystack.”
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.”