Which banks allow first-time buyers to become gifted deposits by their parents?

August 9, 2022

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One of the UK’s biggest mortgage lenders has changed its rules on gifted deposits, further damaging the homeownership hopes of first-time buyers in the wake from the coronavirus pandemic.

Nationwide’s new rules limit the amount of help first-time buyers can get from their parents, at any given time when mortgage choices are shrinking.

Here, Which? explains which banks still allow gifted deposits and provide advice on how much you’ll need to save to get a mortgage.

Nationwide caps the aid of parents

Nationwide’s new rules imply that if your first-time buyer applies for a 90% mortgage, their parents can now only contribute 25% from the deposit. The rest of the 75% must range from child’s own savings.

Nationwide recently became among the first major lenders to reinstate its 90% mortgages, however these changes can often mean buyers determined by the ‘bank of mum and dad’ can no longer afford to purchase a home.

The changes only affect 90% deals, so if you’re taking out an 85% mortgage, the full amount could theoretically be gifted by a parent.

Which banks will still allow gifted deposits?

Of the ten biggest mortgage lenders, Nationwide is the just one to impose restrictions on gifted deposits – but it’s also one of the only lenders to have reinstated 90% mortgages.

HSBC continues to lend up to 90% loan-to-value (LTV), and Barclays is still offering a 95% deal (albeit requiring a guarantor). The other major banks are all capping lending to new customers at 85% LTV.

Several banks told us they’d accept gifted deposits from parents on two conditions: they could read the relationship between your applicant and person gifting the money which you could prove the money won’t need to be repaid later on.

Which banks offer 90% and 95% mortgages?

90% mortgages

Between March and August, the amount of 90% mortgages available to first-time buyers has fallen from 446 to 44.

In that time, the number of lenders offering deals has dropped from 61 to seven.

The best rate on a two-year fix at 90% has risen significantly, from 1.59% in March (Halifax) to two.29% in August (First Direct).

The table below shows which lenders continue to be accepting applications for borrowers with a 10% deposit.

95% mortgages

There are even fewer possibilities at 95% LTV.

In March, 273 products were readily available for first-time buyers, a figure that’s now fallen to just 16. The number of lenders has dropped from 58 to 10.

The best rate on a two-year fix has always been at around 2.5% throughout. It is difficult to check market-leading 95% mortgages like for like, as numerous include criteria attached, such as requiring guarantors or only accepting buyers from specific professions.

The table below shows which lenders will consider buyers having a 5% deposit.

How much do you want for a 15% deposit?

This lack of deals means first-time buyers will need to set up more income when purchasing their first home – but even 85% mortgages have suffered to some degree within the mortgage cull.

In March, 425 mortgages were offered at 85% LTV, in contrast to just 163 now.

Saving a large enough deposit will probably be the largest barrier for many first-time buyers.

On a lb200,000 home, you’ll need lb20,000 for any 10% deposit, but that rises to lb30,000 for a 15% deposit.

There are a few ways you can purchase a home without having such a big deposit.

Check out our story from last week on guarantor mortgages to discover how your parents could help you using savings or property as collateral.

Getting a mortgage after you’ve been furloughed

Buyers could also face problems making to the property ladder if they’ve been furloughed because of the COVID-19 outbreak.

The biggest lenders will only take into account your furloughed income whenever you obtain a mortgage, meaning your borrowing power could be significantly cut.

But because the scheme winds down, some lenders may be more willing to relax their rules.

Yorkshire Building Society told us it'll assess applications on the case-by-case basis rather than imposing one single rule.

Santander, meanwhile, said it will consider applications where borrowers can offer a letter using their employer confirming the date they're going back to work and their salary.