"We are still very much in a low interest rate environment with plenty of options available to those borrowers who can pass the affordability and income checks presented by lenders."
Certainly, looking back it’s possible to see that October/November last year represented something of a low watermark in terms of product rates across many LTV bands but that shouldn’t necessarily be the bad news that some might perceive it to be.
And, while it’s possible to see an upward trajectory in terms of mortgage pricing generally, we are still very much in a low interest rate environment with plenty of options available to those borrowers who can pass the affordability and income checks presented by lenders.
A quick comparison between last month’s and current best buys also seems to show that a highly competitive marketplace is ensuring many rates are not necessarily rising by, for example, the increase we have seen in Bank Base Rate or indeed swaps.
Using Nationwide’s average house price figure for February - £260,230 – I looked at product options and best rates for those putting down a 5%, 10% and 25% deposit, with a particular interest of course in those requiring high LTV mortgage products.
For those with a 5% deposit, there are currently 230 product options covering all types and all terms – up from 222 last month – with 88 two-year fixes and 83 five-year fixed-rate options. Both the total and the two-year product numbers are up on last month, with five-year options exactly the same.
Last month the best priced two-year fix was 2.19%, this month that has increased to 2.37%, less than the 25 basis points BBR was raised by. The best buy five-year fix is up at 2.5%, which is slightly more than 25bps, but not much.
However, let’s look at the big picture here, especially in comparison to where we were at exactly this time last year. Back then 95% LTV mortgage products barely numbered half a dozen, now we are at 230.
Indeed, even in the immediate period after the Government announced its Guarantee Scheme to try and get the high LTV mortgage market moving, the very first products to come to market were pretty much all around the 4% mark. Now you can get five-year fixes at 2.5% - if that isn’t progress in an area of the market that was criminally underserved just 12 or so months ago, then I don’t know what is.
The point being that we have a 95% LTV mortgage market which has effectively been raised from the dead. Of course, house prices have risen over the course of the last 12 months – again, according to the Nationwide, average annual UK house prices are currently 12.6% up, and that will clearly impact on first-time buyers’ deposit levels, but again let’s not forget the situation of a year ago.
With 5% deposit mortgages pretty much unavailable back then unless you had parental support, the reality was you would have needed at least 10% deposit to secure the loan you required. Now, while technically the amount required to fund a 5% deposit is up on 12 months ago, it is considerably less than what first-timers were having to find at the start of last year – namely a much larger 10% deposit.
So, while some would-be borrowers and clients might think ‘rate hikes’ are stopping them getting onto the ladder, the reality is somewhat different. What we can clearly see is a marketplace which has far more options for low-deposit first-time buyers than at any time, certainly since the pandemic began.
Affordability and how lenders take account of the impact on would-be borrowers of rising inflation/utility bills and the like, is going to be of much more relevance in determining their ability to secure a mortgage going forward. Of course, rates play a part here but as can be seen, for high LTV mortgages the rates are still incredibly competitive and far better than for most of 2021.
My perception is that more lenders are looking at their high LTV product ranges and we can expect to see greater use of private mortgage insurance particularly as we get closer to the Government’s guarantee scheme finishing at the end of the year.
That ability to utilise insurance to mitigate risk will continue to apply downward pressure to pricing whilst, at the same time, opening up further product options for borrowers.
It bodes well for advisers and their clients requiring these mortgages, and we should not be backward in coming forward in telling them about the options available. Education here is key, especially for those who aren’t aware of what they could be accessing.
