"Since the Government introduced its Guarantee Scheme last year, we have been able to see a growing number of mortgages in the high LTV space coming to market."
By the time, you read this, who knows who will still be in the leadership race to succeed Boris Johnson, and it probably makes perfect sense not to speculate on who the members of the Conservative Party will be choosing between in the coming weeks.
However, what I sense we will see is the new incumbent setting themselves apart from Johnson, and therefore all those areas of housing policy recently announced, might not actually make it to the statute book.
Whether you have agreed with everything Johnson has said and done in the last few years is another matter, however one point he did make in his June speech on housing – that the mortgage market needs more 95% LTV loans – can’t really be disputed.
Indeed, judging by the direction of travel we have seen in recent months within the low-deposit sector, that call for more products becomes ever more pronounced with each passing week.
As per usual I have crunched the numbers on current 95% LTV product availability, and a picture is emerging, albeit one which I hope is not quite as negative as it might first appear.
Firstly, using the Nationwide’s House Price Index figure for June of an average UK property costing £271,613, I’ve looked at what product availability those first-time buyers with a 5% deposit can currently access.
In total, for all mortgages at all terms there are 190 95% LTV products, comprised of 163 fixed-rates, of which 70 are two-year deals and 80 are five-year products. The total number of products has seen a notable drop in the past few months – in April they numbered 245 and but in May dropped to 206.
The further drop to 190 means we have lost close to a quarter of all 95% LTV products since April, however given that I suspect a large number of those borrowers will be opting for fixes in the current rate environment, this may not be as worrying as we might first think.
For example, the number of two- and five-year fixes available at 95% LTV has actually increased since May. Two-year product numbers are up to 70 from 69, and five-year options have grown from 74 to 80; again, perhaps a signal that new borrowers are looking for long-term fixed-rate certainty in order to ensure they hedge against further rises, and lenders are responding to this greater demand.
However, let’s not kid ourselves into thinking that a drop in low-deposit mortgages is a reason for any sort of celebration. Since the Government introduced its Guarantee Scheme last year, we have been able to see a growing number of mortgages in the high LTV space coming to market.
But, as we move closer to the end of that Scheme, we appear to be seeing a drop in product choice. This has always been a worry for many in our sector, and one of the areas the mortgage review should look into – and we hope it remains part of the plan for any new PM – is whether the Government should actually look at extending the Guarantee element, even if it simply gives confidence to lenders to keep active in this space.
Of course, there are other factors at play here, not least the resource and service issues many lenders are facing currently. It may well be that there remains a strong appetite to lend at 95% LTV, but that – as in other areas – these products have been cut in order to ensure lenders are able to maintain service levels across the board. We may see a hike in product numbers after the summer if lenders are able to square their resource circle.
But, there are a number of facts of mortgage life at the moment. 95% LTV product numbers have dropped, and their pricing has increased. Back in May the cheapest two-year fix available was priced at 2.39%, now it is 2.89%; for five-year fixes you could secure a sub-3% deal at 2.66%, now that cheapest five-year offering is 3.29%.
This is likely to have a significant bearing on your first-time buyer clients, not just in terms of the high LTV products they can access, but the cost of those mortgages in a rising inflation environment, and how they might satisfy lenders’ affordability requirements in order to secure those deals.
Even with the Bank of England/FPC allowing lenders further leeway in terms of their interest rate stress testing, it is likely to have got a little tougher for all first-timers seeking a mortgage, not just those who come armed with smaller deposits.
Overall, however, the need for greater levels of high LTV mortgages cannot be disputed. The steady slide we have seen in product numbers needs to be stemmed, and lenders can utilise the likes of private mortgage insurance in order to ensure their appetite is met and the risk they perceive is mitigated.
