Just 43 products were available at 95% LTV ahead of the scheme’s October launch. That number has since trebled to 132: transforming the choice available to first time buyers.
An extra 22 products have launched at 95% already this year, making it the only LTV band where product numbers have grown in 2014 so far. The available choice of 95% mortgages has increased by 20% since December, while product numbers have all fallen at 75%, 80%, 85% and 90% LTV.
The best buy rate for a two year fixed mortgage at 95% LTV has risen slightly at the start of 2014, but it has still improved more than twice as much as any comparable mortgage rate under Help to Buy 2. The best buy rate at 95% has fallen by 79 basis points (bp) since September from 5.48% to 4.69%.
Simon Crone, Genworth Vice President – Commercial Mortgage Insurance Europe, comments:
“The combination of commercial appetite, government support and private insurance take-up has transformed the outlook for first time buyers and reignited competition for low deposit mortgages. Just six months ago, a 5% deposit left potential buyers stranded with very few options to choose from. But a tide of new products has brought confidence flooding back and has already had a visible impact on the number of loans approved.
"Whether or not borrowers focus on the Help to Buy product range or look beyond it for more options, the scheme’s galvanising effect means there are now far more choices and far better rates at 95% LTV to end their wait for a loan. High LTV lending is good for the economy and – with improved funding markets and government support – it can become a powerful tonic to support the wider recovery.”
The number of mortgage products at 95% LTV remains below 2007 levels, but the surge of new offers is reversing a decline which had left first time buyers starved of opportunities to achieve home ownership. Product numbers at 95% LTV fell by 39% in the first nine months of 2013, leaving 28 fewer options for anyone with a 5% deposit.
The subsequent turnaround now makes 95% LTV the fastest growing part of the mortgage product range. Since September, a further 89 mortgages have appeared at 95%: almost three times as many as in any other product band and more than the combined gains at 75%, 80%, 85% and 90% LTV.
Greater competition for high LTV lending under Help to Buy 2 means consumers with 5% deposits have benefitted most from improving rates in recent months. Between December 2012 and September 2013, the best two year fixed mortgage rate at 95% LTV fell just 50bp, compared with 65bp at 75% LTV, 70bp at 80% and 89bp at 90%.
The impetus has now shifted with rates accelerating downwards at 95% LTV while others have slowed. The best two year fixed rate at 95% LTV has now fallen further since September (79bp) than comparable rates have over the last twelve months (50bp at 75% LTV, 70bp at 80% and 60bp at 90%).
With Santander and NatWest for Intermediaries joining Help to Buy 2, the average interest rate for Help to Buy 2 products improved from 5.24% to 5.19% between December and January. But while Help to Buy 2 rates fell more than twice as far as equivalent products across the whole of the market, they remain more expensive by 13bp on average.
Simon thinks the renewed focus on first time buyers has prompted an overhaul of product options and rates up to 95% LTV and that Help to Buy has alerted the British public to the improving chances of getting a mortgage with a 5% deposit. This interest has clearly spurred lenders to launch products with increasingly attractive price tags.
He said:
“Each lender has a different approach to funding and pricing their products, which is why Help to Buy products do not necessarily offer the best rates. More competition clearly encourages better pricing, and the option of using private mortgage insurance guarantees can help even more lenders add to the mix of available products. Some lenders need a greater degree of bespoke cover and flexible terms and conditions, so they can compete at 95% LTV without being limited by the government scheme.” Simon said.
End-of-year figures for 2013 show the average first time buyer put up a 20% deposit for a mortgage – unchanged from 2011 and 2012. It means the average first time buyer deposit as a percentage of their loan is still twice as big as it was in 2006/07 when the average deposit was 10%.
It has now been fifteen years since the average first time buyer deposit was less than 10% (1998) and sixteen since their average deposit was 5% (1997).
Concluding, Simon had this to say:
“It will clearly take time to get back to a situation where first time buyers are fully supported to obtain a mortgage. Help to Buy 2 is undoubtedly helping the effort, but it will be gone after 2016 – leaving a clear role for private alternatives to avoid another downward spiral and boost the prospects of future generations. Commercial guarantees limit reliance on the taxpayer and will help banks and building societies to lend safely and responsibly at 95% LTV, so buyers are no longer handicapped by having to raise exorbitant sums for a deposit.”
