Nationwide’s rule that applications for its 90 per cent LTV first-time buyer mortgage cannot include fully gifted deposits has caused plenty of discussion in the housing market.

The criteria for the FTB-only products announced on in mid-July includes the stipulation that the bank of mum and dad can only provide up to 25 per cent of a deposit amount.

The average house price in London as of May this year is £486,000, according to the government’s house price index.

This means that int his case, the bank of mum and dad would be able to gift a maximum of £12,150 towards the 10 per cent deposit of £48,600.

Earlier today, Nationwide emailed brokers acknowledging the frustration in the event of a 90 per cent LTV application being denied and reiterated that brokers should “familiarise yourself with our new criteria that applies to all FTB lending over 85 per cent.”

Brokers’ opinions on this restriction vary. Private Finance mortgage consultant Chris Sykes says: “Nationwide are protecting themselves from a large influx of applications at the 90 per cent band while still wanting to provide competitive rates and service so have added this and other restrictions.

“I have assumed the mentality is so if property prices were to fall the borrowers would be savers and not reliant on parents to help them get out of negative equity, for example, if that did occur.

London Money director Martin Stewart is broadly positive about the restriction, too. He comments: “The problem with the current market environment is that the demand is too great for the new business channels to accommodate and this has led us to where we are today, a mortgage industry with blocked arteries.

“Last month brokers were clamouring for 90 per cent LTV products and now we have them they still complain. There are two issues in play here: one is the managing of the pipeline to ensure service standards are maintained and the other is risk. Lenders are being cautious in how they deploy their capital and they have every right to be so.

“These conditions will remain with us for the rest of the year so it’s time for all of us to manage our own expectations as well as those of the borrower.”

However, others are not so convinced. Your Mortgage Decisions director Dominik Lipnicki says: “I can understand why lenders are trying to minimise risk at this precarious time but find Nationwide’s decision to insist that 75 per cent of the deposit must not be gifted rather strange.

“With rents being as expensive as they are, many potential homeowners have been unable to save for a deposit but could easily demonstrate that the new mortgage would be affordable, often far cheaper than their current rent.

“We are seeing an increasing number of parents wanting to have the pleasure of seeing their children on the housing ladder during their lifetime, thus giving the children part of their inheritance whilst they are alive. Without this help, many will be unable to own a home and the fact that a borrower is in receipt of a gifted deposit, does in no way mean that they will be unable to service the mortgage going forward.”

Meanwhile, property expert Henry Pryor says: “Whilst commercial organisations should be allowed to set their own terms of business there must be some very serious questions asked as to why the Nationwide has decided to do this. The impact will be significant and it undermines most people’s understanding that they can and should be able to help their kids to scramble onto the lowest rungs of the housing ladder.

“It may be that the lender is more concerned about the economy than they have admitted or that they are worried about peoples personal finances but lending should be about affordability and whether a borrower can repay their mortgage and not about whether they got help from mum and dad or granny and grandpa, as is frequently the case these days.

“The reputational damage that this has already caused may be short-lived but this policy may have as significant an impact on first time buyer numbers over the next twelve months as the Coronavirus itself.”

And with 16 per cent of parents who had gifted their children money for a first-time purchase through a lifetime mortgage, according to recent report by L&G, this move by Nationwide could have an impact on equity release, too – especially if other lenders follow suit.

Canada Life head of marketing, insurance Alice Watson comments: “It’s heartening to see that banks and building societies are doing the right thing by prioritising responsible mortgage lending. Locking consumers into unaffordable mortgages would be senseless and potentially damaging to both the individual and the lender.

“However, the bank of mum and dad is not a new phenomenon and with property prices continuing to grow, a first home is simply unattainable to many without family support.

“Equity release has proven to be a popular way of unlocking intergenerational wealth to share with younger family members. Many customers, who opt for a lifetime mortgage, view it as a way to take control of their legacy and share an inheritance when most of use to their family.”

Separately, financial information firm Defaqto released figures today showing that two lenders other than Nationwide have returned to the 90 per cent LTV funding market in the last three weeks – HSBC and Metro Bank.

This makes up ten new fixed rate products aimed at FTBs, bringing the total number for this sector to 28.