Few would disagree that this is an interesting time for the UK mortgage market at present, and that the positions being taken right now are going to have fundamental consequences for the rest of the year.
That is undoubtedly the case in the high LTV sector, because we are now in the ‘run-off’ period for two highly important schemes for first-time buyers and those who require high LTV mortgages.
Of course, the Help to Buy scheme in its current first-time buyer-only incarnation, finishes at the end of March next year, while the Government’s Guarantee scheme – which did so much to act as a catalyst for the 95% LTV mortgage market – is due to breathe its last at the end of this year.
Concentrating on the latter, I have been very vocal in stressing the need for an industry-led solution to the ongoing provision of high LTV products, particularly 95% LTV mortgages, once the scheme comes to an end. Industry solutions are in place, and I expect the number to grow, but the question will be raised around whether this is still enough?
It has always been my fear that we might see a significant fall-back in the provision of high LTV/95% LTV mortgage products as we drew closer to the end of the Government guarantee scheme. Even if, somewhat conversely, most of those lenders offering such products were not taking part in it.
Michael Gove made some recent comments about improving the provision of high LTV mortgages which has let some to speculate he, and his Department, are looking at other countries’ mortgage insurance schemes for borrowers, which enable ongoing provision of such products, cheaper rates, and a mitigation of risk.
Perhaps Gove runs a regular check on the number of 95% LTV products available each month – as I do – because if he does, then his thoughts on improving both product numbers and rates, do come from a position of substance.
We might hope the following figures are a one-off and not a trend but it does seem as if a little of the air is going out of the high LTV market, specifically 95% LTV which is predominantly utilised by first-timers.
Using the Nationwide’s average house price value for April of just over £254k, I ran the product numbers for first-timers accessing 95% LTV mortgages today.
Compared to April, we have seen quite a drop with 206 products of all types and terms available, as opposed to 245 last month. The upward trend has therefore reversed somewhat sharply – 179 of those products were fixes, with 69 2-year and 74 5-year. It is perhaps not surprising, in the current interest rate environment, lenders are offering 5-year fixes in order to tap into a demand for longer-term mortgage payment certainty.
While product numbers have shifted downwards, pricing remains very similar, even with recent Bank Base Rate moves. Last month the cheapest 2-year fix was at 2.36%, while this month it has inched up slightly to 2.39%, while the cheapest 5-year fix remains at 2.66%. Of course, these rates – in recent historical terms at least – are highly competitive and a long way from the 4%-plus we were seeing when the market was reinvigorated last Spring.
However, that drop in product numbers is somewhat worrying and, as mentioned, it’s not something we want to see throughout the rest of the year, especially given the demand and need for such products.
For a Government that is putting a lot of store in greater numbers of first-timer buyers as a metric of success for its Levelling Up agenda, you would hope that some kind of pressure could be maintained, and it may even have to extend its own Guarantee scheme if there is a whiff that lenders are becoming less confident in offering 95% LTV products.
In a way, the jury is out, because it is just one month’s figures after a period when the product choice trajectory was firmly up, so I will wait to see whether this is an unwelcome blip or a sign of what could be to come.
Again, at a time, when the demand from first-time buyers is strong and where we would hope to secure more people onto the ladder with lower deposits, it’s clearly not ideal to have product numbers dropping.
Just how much of this decisioning is based on a worldview of risk and appetite, and how much might be service-driven in terms of them dealing with large levels of business without all the required resources, also remains to be seen.
It will obviously be something of a combination but would be somewhat more positive for first-timers if lenders are pulling back slightly on such business while they sort some resource issues out, rather than them thinking they need to pull back from this demographic for the reasons mentioned above.
Overall, I would hope there remains enough product ‘to go round’ but clearly when it comes to securing a highly-competitive sector with a continued downward pressure on pricing, the reality is the more, the better.
Patrick Bamford is head of international business development at Qualis Credit Risk, part of AmTrust International
