Over the last month, there has clearly been some important developments which impact lending, advisers, and most importantly, first-time buyers.
We await to see just what the full impact will be of the decision to allow banks and building societies to increase their share of higher loan-to-income (LTI) mortgage lending on their books – up to 15% of new lending – although the Bank of England suggests this could increase the number of mortgages to first-time buyers by 36,000.
Of perhaps less note, was the decision to make the Government’s mortgage guarantee scheme permanent. Rebranded as 'Freedom to Buy’ this ‘new’ scheme continues to be more of a PR exercise than anything which is going to truly shift the dial.
Indeed, I continue to believe, perhaps unsurprisingly, that there is no requirement for it. It feels unnecessary given the low take-up by lenders, the fact that it is costly and inflexible, and there are plenty of private alternatives which are much more appropriate and don’t cost the taxpayer anything.
We are a long way down the road from when the number of low-deposit mortgages could be counted on one hand, and the market has clearly moved on significantly from that point. What was undoubtedly needed back then, is not needed now, as the market has filled that gap and will continue to do so.
Which brings us neatly onto the mortgage options available to first-time buyers who only have small deposits because, as mentioned, this is an environment which has shifted emphatically.
Each month, I review the number of high LTV mortgage products available to first-time buyers based on the monthly average Nationwide house price.
In July, the average price had increased month-on-month by 0.6% up to £272,664, which would require a 5% deposit of £13,633.
Product choice at 95% LTV has continued to increase – up from 304 last month to 307, split between 277 fixes and 30 trackers, variable or discount offerings. This is a healthy product space, in which the vast majority of lenders compete, which once again would make you question whether there was any further need for ‘Freedom to Buy’, let alone making it a permanent part of the market.
In terms of the variable best buys, Newbury appears to have pulled a couple of products, but it still offers a 4.79% three-year discount, and both Furness and Scottish Building Societies continue to offer their 4.99% two-year discounts.
For fixed-rates, in the two-year space, Lloyds continues to lead the way with its 4.67% product, the Leeds has a 4.68% mortgage, while the Monmouthshire offers one at 4.7%. For five-year fixes, the Monmouthshire has a 4.6% deal, while the Furness comes in with a 4.65% mortgage, and the Leeds has a 4.66% product.
In recent months I have also looked at the market for 100% LTV mortgages which appeared to be growing. That said, we have seen a dip in product choice this month, with the number of products falling from 19 to 16.
However, when compared to the pricing at 95% LTV, it’s possible to see some competition and in terms of the rate itself, it feels quite keen.
For instance, Lloyds offers its 4.45% three-year fix 100% LTV mortgage to current account customers only and the Halifax has a three-year fix at 4.55%, but only available in England; plus the Progressive has its Northern Ireland-only five-year fix at 4.9%.
That being the case, might certain borrowers wish to keep hold of any deposit they have saved and secure a better rate at 100% LTV, albeit knowing that they will be paying more each month, and will have no ‘skin in the game’?
It’s a conversation that advisers will be having with potential first-timers, plus of course there is always the option here to put down less than a 5% deposit, secure that rate, and have a lower monthly mortgage payment than they would have by putting no deposit down.
The positive in all of this is that, 96-100% LTV mortgages may be low in number and be constrained somewhat in terms of access, but these options do now exist, which has not always been the case.
We await to see whether more lenders will feel the need to ‘play’ in this market, or will they simply take advantage of the LTI changes in order to support more first-time buyers onto the ladder.
