"With product rates continuing to fall, affordability issues ease, and while I don’t anticipate house prices to rise, this should also help first-time buyers."
Each month I review the mortgage product numbers and pricing available for first-time buyers seeking a 95% LTV option, and to do this I use Nationwide’s house price index figure for the average cost of a home in the UK.
In December that figure was £257,443, which would require a 5% deposit of £12,872.
Regular readers will have noted these figures dropped over the last year and that may be some comfort for first-timers who for a very long period have looked at ever-rising house prices, and will have had to contend with the difficulties in terms of saving for a deposit, and more recently, meeting affordability criteria in a higher-interest environment.
Will that change in 2024? If it does, then perhaps only very little. Nationwide itself suggests “a rapid rebound in activity or house prices in 2024 appears unlikely” and many agree with that.
However, there is a growing suggestion that, whereas previously, forecasts have tended to be too positive, this latest batch may actually be overly negative. With product rates continuing to fall, affordability issues ease, and while I don’t anticipate house prices to rise, this should also help first-time buyers.
In terms of mortgage advances, first-timers have been the dominant buyer group for almost two and a half years, and if the market progresses in the same manner, and the Government feels it needs to incentivise first-timers again, then we could see further improvement here.
However, what we also need is a growing number of competitive product options for those with smaller deposits. Large numbers of first-time buyers are completely reliant on family support to help them on the ladder, and by accessing this, they can also secure lower LTV deals with lower prices and therefore lower monthly mortgage payments.
However, the Bank of Mum & Dad (BOMAD) is not an option for significant numbers who still want to get on the housing ladder, and while it is clearly a positive that we are seeing an increasing number of 95% LTV product options – up this month to 200 from 189 in December – it would also be a real positive to see pricing come down.
Admittedly, it is very early days in January, but we’ve seen next to no price changes across the ‘best buy’ 95% LTV products over the course of the last month, while many lenders have cut rates for lower LTV options.
For 95% LTV, Skipton continue to have the best five-year fixed-rate, the same price as last month at 5.17% and only available in England, while the best national two-year fix has come down a little and is now available from the Leeds Building Society at 5.59%.
No surprise really to see the building society sector leading in this product space, given their use of private mortgage insurance in order to mitigate against the risk of offering high LTV products, and by doing so, they can be at the cutting edge in terms of pricing.
That said, there are still some sizeable differences for first-time buyers depending on the level of deposit available to them. The best buy five-year fix for those with a 10% deposit is Virgin Money’s 4.71% deal, while for those with 25% they can access a 4.34% five-year fix if they are a current account customer with Lloyds.
Those are fairly sizeable differences and of course would mean considerably cheaper mortgage payments for those fortunate to have bigger deposits. Whichis not to say we won’t see 95% LTV product pricing dipping, but it’s also true this product segment tends not to fall as fast as others.
However, if lenders were able to utilise private mortgage insurance within their higher LTV propositions, not only would they have that risk mitigant in place, but as a result, might also be able to look at a more competitive price point that would undoubtedly be welcomed by both advisers and their first-time buyer clients.
Overall, even though it is very early days and we might see some movement and activity in the weeks ahead, it would be a real positive to see an even greater level of appetite from lenders for high LTV lending, and to be able to make price moves as frequently for these products as they have been doing for the rest of their range.
We’re all aware of the demand from would-be first-time purchasers – let’s give them a highly competitive market to choose from in 2024.