More high LTV mortgage options remain key to reviving the first-time buyer market

Patrick Bamford, head of international business development at Qualis Credit Risk, argues why it's vital the lending community introduces more 95% LTV and above product options in the current first-time buyer environment.

Related topics:  Blogs,  Mortgages,  First-time buyer
Patrick Bamford | Qualis Credit Risk
10th May 2024
patrick bamford genworth
"House prices too high, higher mortgage costs, they can’t afford the extra costs involved in buying, they can’t pull together the necessary deposit, or they can’t borrow enough."

There’s no shortage of data, research or statistics on the first-time buyer market and that’s generally because a) it’s one of the more interesting parts of our industry, b) this is ‘new blood’ and its ability to get onto the housing ladder shifts the landscape for everyone, and c) their wants and needs, and importantly, their ability to make these reality, tell us all kinds of things about the health (or otherwise) of the property and mortgage markets.

While the research we receive on first-time buyers is often different and nuanced, especially in the context of those who want to buy a first property and those who actually have, they do all tend to paint a picture which is pretty difficult to finish.

Buying a first home is no ‘paint by numbers’ exercise, and while different generations might well say ‘it’s always been difficult to buy a home’, they can rest assured that it’s never been as difficult as it is now. Anyone who says otherwise is living in some kind of fantasy land.

Ultra-high house prices, stagnant wage growth, higher interest rates meaning higher affordability criteria to get over, not forgetting of course the difficulty in saving for a deposit in the first place in the face of rising rents, and housing supply nowhere near meeting demand either.

I could add in the cost of living and its impact on household incomes, the relatively low number of higher LTV mortgage options, plus the rise in single-occupancy households, a significant increase in the UK population, house building not meeting targets, a preference for new-build over second-hand properties, etc, etc.

It all adds up to a recent statistic out of research from Censuswide, on behalf of Nationwide, which revealed that 49% of prospective first-timers – defined as those looking to buy in the next five years – said they had delayed their plans to buy over the past year.

The reasons they give mirror those mentioned above – house prices too high, higher mortgage costs, they can’t afford the extra costs involved in buying, they can’t pull together the necessary deposit, or they can’t borrow enough.

No shocks there, especially to an adviser audience who are at the sharp end in terms of trying to help prospective first-timers into their first home.

Of course, where we can all be helped is in terms of lender activity in the high LTV market place. The same Nationwide-commissioned research suggests that the average 10% deposit on a typical first-time buyer home is £22,000, but 67% of those surveyed only have between either nothing and £10,000 saved.

That is of course a big gap, however – also using Nationwide’s latest house price index – we can see that the average house price is now just under £261,000, and a 5% deposit on such a property would be around about £13,100. Significantly closer to the £13,000 average deposit required by first-timer buyers than £22,000.

It is therefore incumbent upon all of us to push the lending community to do more, to introduce more 95% LTV product options, or even above this, as we have seen with Yorkshire/Accord’s recent foray with its 99% LTV product. That would undoubtedly make the saving a deposit journey much easier, and they would also know they had competitive product options to choose from when they saved the amount required.

Each month, I look at the number of 95% LTV products available – using the Nationwide house price figure – and I’m pleased to say that we have seen an increase to 227 products, up from 219 last month.

These are split between 195 fixes and 32 trackers/discounts. The increase in the number of trackers/discounts may be of interest in itself, considering borrowers might now be more inclined to look at variable options if they believe it is going to be longer before we see a Bank Base Rate cut, for example, and they might believe fixes are not as competitive as they were at the start of the year, for example.

That fixed-rate viewpoint appears to be borne out by the latest ‘Best Buy’ tables for higher LTV products, which have gone up over the last month.

The top five-year fix remains the Northern Ireland-only 4.8% option from the Progressive Building Society but last month this was 4.55%, and while the Family Building Society retains its 4.89% mortgage, the next best is the Newbury’s 4.99% product.

In the two-year fixed space, we also have higher rates. Scottish Building Society’s Scotland-only product remains top but has increased from 5.29% to 5.39%, while the Progressive’s product has gone from 5.15% to 5.45%, and the next best is the Hanley Economic and Lloyd’s 5.49%.

Finally, there has also been some change in the variable/discount/tracker product space for 95% LTV borrowers. The Loughborough’s three-year discount has gone up slightly from 5.1% to 5.15%, the Progressive’s two-year discount has gone up from 5.05% to 5.39%, while Vernon Building Society’s lifetime discount remains at 5.4%.

As can be seen, the direction of price travel is upwards over the last month – and that will be no different to other LTV sectors. While many predicted the Bank of England would act, potentially in May or June, that now appears to have been pushed back, and swaps have reacted accordingly.

It shows how quickly sentiment can turn when it comes to product pricing. However, when it comes to first-time buyers the facts have not tended to shift much at all in the last 12-18 months. It is hard to save, it is hard to meet affordability criteria, it is hard to find a property to buy in the first place; however, lenders can make their lives easier with more high LTV options, and they should also look to see whether they can go above 95%, utilising private mortgage insurance in order to do so. We should all hope that others can follow Yorkshire’s lead and we can recognise the difficulties being faced and the solutions that are needed.

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