"Our view is that 100% LTV mortgages are not toxic, they can be lent responsibly and tend to have lower arrears rates due to the higher credit score required. "
It has however been something of a source of bemusement, and consternation, to us that the 100% LTV mortgage was somehow deemed culpable in the Credit Crunch, and has since then been persona non grata for lenders because our regulators are far from keen on them being reintroduced to the market.
This, despite the fact that many potential first-timers who are struggling with saving for a deposit – and yet would meet the affordability criteria as set down by lenders – would clearly benefit from access to 100% loans. And, that 100% LTV products had been incredibly useful and delivered very low arrears rates for the vast majority of lenders that offered them, prior to the Crunch.
The landscape however for such lending can hardly said to be benign at the moment – for instance, the PRA limits the amount of mortgage lending that can be written for borrowers at over 4.5 times income to 15% of their book. That makes it incredibly difficult to lend at anything like the levels needed, especially when you have to factor all other niches – such as loans for high-net worth individuals – into that share of 15%.
The BSA is right to call for more lending in this area but it’s a difficult nut to crack for lenders to do this, especially given the lack of support for it from the FCA, Bank of England, personal finance media, etc. It would take a brave lender to go there, although we know of one which did try to launch three years ago but came up against such an aggressive push back from the regulator, that it couldn’t get the products over the line. This despite the fact its figures proved strong and these product options would likely have resulted in a very low level of arrears.
This doesn’t however stop such mortgages from being a good idea, and one would hope that there is room for more encouragement in the 100% LTV space, especially from the Government, who must surely be able to see how this fits into its pro-first-time buyer agenda. No-one is asking lenders to be reckless and lend to those that can’t afford to repay such loans, and we should not think that our lenders somehow can’t be trusted to lend responsibly in this area. They can, and they would, given the opportunity.
Plus, this does not need to be an all-encompassing, UK-wide approach. Lenders will of course be able to cherry-pick to who they lend to, and indeed, where they lend. 100% LTV mortgages would, for example, undoubtedly be popular in many areas of the country, especially those with high employment levels, but also lower average wages/high rental costs, etc, - circumstances which make it hard to save up for a deposit. We’re thinking of places like Luton or Peterborough and others like them.
On top of this, we should not simply accept that only those potential purchasers, who can go to Mum and Dad for a deposit, or a guarantee, are now able to get on the ladder. Indeed, we might suggest that the ‘Bank of Mum & Dad’ has only become more prevalent because there aren’t higher/100% LTV options available.
Our view is that 100% LTV mortgages are not toxic, they can be lent responsibly and tend to have lower arrears rates due to the higher credit score required. Plus, in a world in which we are moving less frequently, why wouldn’t a no-deposit loan be a great option for a first-time buyer?
Lenders – particularly challengers and the specialists – would undoubtedly like to make their move into such sectors, but the regulatory headache it delivers, the hoops they have to jump through and the constant justification, make it currently not worth their while. If we can get some movement and a more flexible approach, then this type of lending could support far more first-time buyers in securing home-ownership. Hasn’t this been the Government’s aim all along?
