"As of this week, demand for 95%+ mortgages has already more the trebled in the space of a single month and the scheme hasn't even launched yet."
April 19th was a date pencilled into brokers and intermediaries' diaries as soon as Rishi spoke about the upcoming 95%+ mortgage guarantee scheme.
At the time of the scheme's announcement, six of the top 10 overall mortgage lenders committed to providing 95% mortgages on a fixed, five year basis. Those products will come online over coming days.
The scheme will bake in demand for the coming future – currently until the end of 2022 and will likely prevent some of the fall off that the market would otherwise experience when the stamp duty holiday comes to an end.
The scheme is aimed at getting the one part of the market working that looked most likely to falter: first time buyers. Without first-time buyers, sellers only have one option at the lower end of the market: landlords. Hence, the Government has sought to diversify the buyer base with this scheme. It will be interesting to see if this pays off and we'll report on that in due course, as you'd expect.
Demand in the past month
As of this week, demand for 95%+ mortgages has already more the trebled in the space of a single month and the scheme hasn't even launched yet.
But has it really trebled? It's more likely that it was pent up and brokers and intermediaries knew this. Yes, search volumes are three times higher over the previous month for this band of mortgages, but we have also seen a 25% increase in searches per ESIS being produced by brokers, in other words, more research before any form of document is generated. This is particularly evident in the higher LTV bands where product criteria, affordability and acceptance is restricted.
Supply in the past month
What uplift have we seen in products being offered in the 95% range?
69 95% products were available in February, rising to 99 products in March and quickly followed by a rise to 187 in the first week of April.
But last June (in 2020), even as the market had taken cover due to lockdown 1.0, there was still a selection of 95% products available in the market: 115 as we reported in our first ever monthly mortgage market report. That said, the eligibility surrounding those products were very limited at the time.
Now, some early movers have already created products as demand has swelled prior to the launch of the scheme and the major lenders coming online with their products.
But if we look back, to life in the market before the pandemic, it's worth noting that the top ten mortgage overall lenders – including those six already signed up to the scheme - are not the same lenders who dominated the 95%+ product range prior to the pandemic.
Our sense is that there will be some lenders who re-enter this LTV range with new products that sit outside the guarantee scheme (they take on more risk, but also don’t have to offer 5-year fixed terms and pass on any associated costs).
These will compete with major lenders' products and it's going to be interesting to see how rates are determined and what risk is priced in on the basis of being part of the scheme. The market needs the guarantee scheme, but it also needs choice and stability. How these new products enter the market, their availability and lender capacity over the coming weeks and months, will be a key metric in the success of the scheme.