A few weeks ago, the industry was bemoaning the fact a potential Government scheme to introduce 99% loan-to-value (LTV) mortgages had not made it off the starting grid.
The perceived wisdom about why this might be the case rested with the lending community, who had apparently told the Treasury such products would come with a much higher risk of defaults and therefore wouldn’t be one for them to offer.
However, time moves quickly, and a few weeks on we have the Yorkshire BS/Accord product for first-time buyers which potentially allows them to get on the ladder with just a £5,000 deposit, up to a maximum property value of £500,000.
Hence, a 99% LTV mortgage, but with some notable caveats, not least in terms of the type of property first-time buyers can buy with such a product, or rather the type of property they can’t buy, namely all new-build properties, and no flats or apartments of any kind.
Now, while we of course welcome this product launch and the recognition of the £5,000 ‘sweet spot’, the point around the properties first-timers can’t buy with this product seems to bleed into a much wider debate about trying to get people into the homes they want to live in.
New-build properties are extremely popular with first-time buyers – just look at the Help to Buy scheme in its previous iterations – but we get the potential problem Accord are trying to avoid here.
Namely, the ‘car off the forecourt’ issue that as soon as you buy a new-build it is worth less than that value, and if borrowers have used a 99% LTV mortgage to do so, then they are already in negative equity.
One would think however that the 5-year fixed-rate term would go some way to assuaging their issues with this, but clearly not.
And then we move onto flats. How many first-time buyers have begun their property-owning journey in a leasehold flat? Answers: millions, and yet here we have a lender not willing to lend against these properties.
The issue of lending on flats and apartments is not just one that Accord clearly have issues with.
One of, if not the biggest, lender in Europe, HSBC, currently only offer a maximum LTV of 85% on flats and apartments, so it’s clearly a much wider issue.
This 85% LTV maximum was brought in during the Covid period, and we were told at that time it would be temporary, however four years on it’s still a place, and perhaps tells you the overwhelming issues the lending community have with leasehold property, in an environment where the Government was supposedly intent on reform and making it fairer for leaseholders, but has just u-turned again, this time with regards to reducing ground rent to a peppercorn.
It would appear that some big beasts were able to bend the ear of the Housing Secretary, suggesting pension funds and the like would be unduly impacted by such a move, and therefore we have a situation where leaseholders will still be having to deal with escalating ground rents, not forgetting the service charges that many management companies continue to compel them to pay for no or little ‘service’.
It is perhaps no wonder lenders are tentative to say the least about lending significant amounts, particularly to first-time buyers, when they could be making the next generation of mortgage prisoners and/or ensuring that they have few options should they want to remortgage to a different lender in the future or, heaven forbid, sell the property.
And so we can slightly understand the reticence of lenders in the flats and apartments space, and they – like many others – have been let down here by the Government in terms of its inaction in this area.
However, a 15% deposit requirement to buy a flat for a first-time buyer is completely over the top, especially when we know the deposit barrier is one of the biggest to get over, and these are exactly the types of properties that wannabe buyers end up buying, because there tend to be more available – particularly in cities – and they also tend to be at the price point which they can afford.
In essence, lenders here are actively discouraging people from buying flats and apartments. What would you think if you found out that a lender wouldn’t lend to you at all on such properties, or they will, but you’d need to come up with a lot more money to do so?
You’d probably think they were trying to tell you to keep away, when actually – for the vast majority – these are good properties to buy, with perfectly reasonable leases, and with proper Government intervention, wouldn’t have escalating ground rents or over the top service charges from the management companies who run them.
Instead, by not fulfilling its duty in this area, it feels like the Government is forcing flats and apartments into a defective property category, to be avoided at all costs, when nothing could be further from the truth.
Perhaps we have to leave it down to the next Government to sort that out, but what we do know is that in a UK housing market where, approximately, 20% of all properties are flats, maisonettes or apartments, the lending community need to find a way to allow first-time buyers to purchase the types of properties which are likely to mean they can get out of renting and onto the ladder.
If your gateway to ownership, or your preference, is to buy a flat or apartment, then lenders should not be putting obstacles in the way to stop you doing that.
Rory Joseph and Sebastian Murphy are group directors at JLM Mortgage Services
