The new Prime Minister, Liz Truss, enters office with not so much a busy in-tray to contend with as an absolutely overflowing one. We will wait to see just how her ‘new’ Government sets about dealing with everything that entails.
The mortgage and housing markets are of course at the centre of this economic storm, impacted by rate rises and rising inflation which in turn determines ongoing borrower affordability.
It will be a new experience for many existing borrowers in particular who may not have seen rates at this level before, plus of course this current situation undoubtedly makes it more difficult for wannabe first-time buyers to get on the ladder.
House prices have yet to come off their peaks requiring larger deposit levels, and as we will see below, rates have continued to rise across the board, while the cost of living means increased outgoings hit the ability to save for those deposits and meet the criteria requirements of lenders. I’m not sure you would describe this as a perfect storm but there are some incredibly strong headwinds that first-timers have to lean into.
It is not all doom and gloom, however, for those wishing to get onto the ladder. As you will know, if you’re a regular reader of these articles, I tend to keep a monthly watch on what is happening in the high LTV mortgage space, because it is so vital that we keep a steady supply of such products in order to bring in the new blood required.
As we know, 18 months ago product availability in that space was practically non-existent and we have – thankfully – moved a long way from that period. That said, there’s also no doubt that over the last six months the trend has been downwards when it comes to 5% deposit mortgages specifically, and the latest figures continue to reflect this.
Using the most recent Nationwide House Price Index figure for the average UK property which currently stands at £273,751, I looked at the availability of products for first-time buyers who had a 5% deposit.
For 5% deposit holders, there are currently 176 mortgage products available, only slightly down from the 179 available last month, although we should remember that back in April this figure was 245. Fixed-rate options have held steady month-on-month, currently at 155.
As mentioned, that in itself is positive news, in that product numbers appear to be holding steady, although of course this is some way off the peak. My hope is that – as has been widely reported – a number of lenders have pulled back from the high LTV sector during this summer in order to work through backlogs of cases and that they will return to this space through the Autumn and into the Winter.
Certainly, as we move towards the end of the Government’s Guarantee Scheme we need to see a continuation of activity in high LTV lending, and it is my sincere hope that the end of the Scheme does not also signal the end of some lenders’ activity here. We can’t be an industry purely reliant on Government backing, even if many lenders are now active in the space without using this particular scheme.
As you might have anticipated with Bank Base and swap rate movements, pricing for 95% LTV mortgages continues to move upwards. We are a long way from May when first-timers could have picked up a two-year fix at 2.4%; now the best one on offer is 3.89%, although there are discount products available below 2.7%. However, we know that BBR is likely to be moved again, perhaps multiple times, and that will raise the cost of discount mortgages over their two-year term.
Overall, however we can be positive in that first-timers who do not have access to the Bank of Mum & Dad, or who are not fortunate enough to have the larger deposits which would give access to greater product choice and lower rates, do still have a relatively strong number of products to choose from and have lenders who still do want to lend to this borrower demographic.
At the very least, particularly over the next 18-24 months, we need to maintain that level, to wean the industry off Government support without lenders deciding they can’t lend in this space, and utilise schemes like Deposit Unlock and private mortgage insurance, to help lenders mitigate the risk they feel.
In that way, we should be able to provide the necessary financial stepping stone to allow new purchasers into the homes they want without requiring the huge deposits that are increasingly difficult to save for.
