What a difference a month makes. Only four weeks ago we were reflecting on a steady increase in high LTV product availability, with lenders increasingly supporting first-time buyers with more modest deposits.
This month, however, the tone appears to have shifted. Each month I look at the product availability for first-timers with both a 5% or zero deposit, and we’ve clearly seen a sharp drop in high LTV mortgage availability, with total product numbers falling from 313 last month to 256 as of the start of October.
That’s a reduction of 57, which is not insignificant, and the most pronounced contraction has been in the fixed rate space – down from 285 products to 232. Trackers, discounts and variables are also lower, though only by four, from 28 to 24. And perhaps most striking of all is the decline in the 100% LTV space – products halved in the course of a month, from 21 down to just 10.
It’s always tempting to try and identify a single cause when you see such a sudden shift in lender behaviour, but the reality is likely to be much more nuanced. There are likely to be a combination of factors at play here.
First, we know that high LTV mortgages are the most capital-intensive, and often very sensitive to changes in swap pricing. Even a small uptick in volatility can make the economics more challenging for lenders, especially on fixes.
Second, there may be an element of risk appetite management going on. With house prices continuing to rise modestly - Nationwide puts the average at £271,995, up 0.5% month-on-month and 2.2% year-on-year - lenders may be conscious that affordability remains stretched.
Third - and perhaps most intriguing - is the party political/policy backdrop. The Government has been trailing the possibility of new support measures for first-time buyers in the upcoming Budget, and indeed only last month ministers met with senior figures from the banking and building society world to discuss lending activity.
The irony that these meetings have now been followed by a contraction in the very products first-time buyers rely most on will not be lost on many. But from the lenders’ perspective, this may seem like a very rational decision to make.
After all, why commit balance sheet and market-leading pricing today, when in a matter of weeks the Chancellor might unveil fresh policies, incentives, stamp duty changes, or even a new scheme to stimulate high LTV lending? Better to perhaps wait, take stock, and re-enter the market once the policy landscape is clear.
Against this backdrop, it is interesting to look at this month’s best buys. Product numbers have fallen, with a number of lenders clearly deciding to trim their higher LTV product offering over the course of the last month.
Normally, you would expect to see a number of building societies leading the way, but currently it is some of the biggest high-street names who are setting the pricing pace.
In the two-year fix space, Lloyds is currently offering a 4.66% deal available to current account holders only, followed by Yorkshire Building Society and Halifax, both at 4.75%.
On five-year fixes, Lloyds again tops the list with a 4.67% rate, again restricted to its current account customers, with Halifax and Lloyds (this time for all borrowers) both at 4.77%. That positioning - the mainstream banks rather than the mutuals at the pricing sharp end - is unusual and suggests a degree of strategic repositioning, perhaps with one eye on balance sheet mix ahead of any Budget announcements.
For those opting for trackers, discounts or variables, it is the mutuals that retain their edge. Newbury’s three-year discount at 4.04% is the market leader tops the table, with Bath Building Society next with its two-year discount at 4.89%, and Hanley Economic follows with a two-year discount at 4.94%.
And, as mentioned above, in the shrinking 100% LTV product space, choice is now extremely limited. Lloyds offers a three-year fix at 4.44% - again only for current account holders - while Bath BS has a two-year discount at 5.09% and Beverley BS a three-year discount at 5.14%.
Again, just as with 95% LTV products, this highlights just how sensitive the zero-deposit sector is to funding and policy speculation. It will be interesting to see whether this shifts further in the weeks ahead, but at the moment, it feels unlikely we will see much of a rebound before the Budget.
So, while rates themselves remain fairly stable, the real story this month is the change in product availability and who is leading the market. Lenders are clearly repositioning, and seemingly, the combination of funding costs, regulatory capital pressure and political uncertainty is leading to a pause for breath at the high LTV end.
The good news is that competition remains in evidence – we are clearly a long way forward from the point a few years back when there was just a handful of high LTV mortgages available - and for those borrowers who qualify, the rates available are still decent levels.
However, something has clearly shifted over the past few weeks in our corner of the market, and I suspect all eyes will be firmly fixed on the Chancellor and the Government over the weeks ahead to see if we get any inkling of what could be announced in next month’s Budget.
