The Nationwide Building Society announced on May 3, 2011 that it would be launching a new savings account designed to give some first-time buyers in the United Kingdom access to more affordable mortgage deals by helping them save towards a deposit. What is Save to Buy and how will it work?
What is Nationwide's Save to Buy Deal?
Save to Buy uses a savings account system to give first-time buyers access to better loan offers in the future. Potential buyers make regular payments into this account for a period of time, after which they can apply for preferential deals, some of which are normally reserved for existing mortgage holders.
How Does Save to Buy Work?
The minimum amount needed to open an account is £50. You will then need to pay in at least £50 a month and will be paid interest on your savings at a rate of 2.5% gross per annum (on balances up to £20,000). Customers are given the chance to skip the minimum monthly payment for a maximum of three months over a 12-month rolling period if they wish.
The savings account must be held and maintained for at least six months (maximum of three years) before you can apply for a mortgage deal. This could be the Nationwide's 95% LTV product or any of the society's other first-time buyer offers that are available at the time of application.
How Does This Help a First-time Buyer with Deposits and Mortgages?
The system may encourage people to formally save towards a deposit, although most looking to get on to the mortgage ladder will already be prepared to do this. It may, however, give them access to a deal with a 5% deposit/95% LTV. These loan rates are usually offered to existing customers and not to people looking to buy their first homes.
Nationwide has also committed to a cash-back deal for any customers who are accepted for its 95% mortgage. This is based on how much you save overall. The structure of payments is £250 (for savings of £2,500-£4,999), £500 (for savings of £5,000-£9,999) and £1,000 (for savings of £10,000+). According to Martyn Dyson, the society's Head of Mortgages ("First time buyers can 'Save to Buy' with Nationwide", May 3, 2011), this could make buying a first home a "closer reality".
When Can First Time Buyers Apply for an Account?
You can apply for a Save to Buy account from May 6, 2011. It is important to note that saving into this product does not come with any guarantees of mortgage approval in the future. The account gives you the chance to apply for this preferential deal, but you will still be assessed fully at the time of application.
Part of Broader Moves to Boost the First-time Buyer Market in the UK
The UK government has emphasised the need to boost first-time buyer entry into the housing market in recent months and has launched its own shared equity scheme, FirstBuy, for those looking to buy new-build homes. This may have spurred on lenders to offer more innovative solutions for this sector. In March 2011, for example, Lloyds TSB launched a trial of its Local Lend a Hand scheme which brings together backing from local councils to help people raise deposit cash.
Deals such as Save to Buy, however, hark back to more traditional ways of lending. Speaking to The Guardian ("Nationwide opens door to first-time buyers with 5% deposit", Jill Insley, May 4, 2011), David Hollingworth of London & Country mortgage brokers, commented that this kind of product was "getting back to that old-fashioned condition of wanting to get some savings in and making sure the borrower is able to put money away each month. This is no bad thing."
Nationwide is not the first UK lender to offer this kind of deal. At the moment similar products are offered by the Nottingham and Cumberland Building Societies and the Yorkshire and Clydesdale Bank. It may be worth looking at alternatives to compare benefits and, if necessary, to find ways to speed up the process of saving for a deposit.
Carol Finch - Carol Finch is the Topic Editor for Retirement Planning, Budgeting, E-Commerce & Technical/Business Writing on Suite101.
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