Let’s get this out of the way immediately – every single lender operating in the mainstream residential mortgage market should be offering 100% LTV products.
There, we’ve said it. The fact this isn’t the case in 2023 is utterly bizarre, however in this context you can understand why the launch of Skipton’s recent 100% LTV product has garnered so much attention.
Secondly, hats off to the Skipton for going where others have been so fearful to tread for over a decade. Again, it is quite odd that it has taken a building society – admittedly one of the bigger ones with a national presence and very adept at sensing commercial opportunities but who are not what we might call one of the ‘big six’ – to have led the way here.
When we first entered the mortgage market as advisers in the mid-90s, 100% LTV mortgages were offered by most of the big players. Indeed, the big bank lenders tended to dominate in this regard, and it will therefore be interesting to see how they respond to this move.
To our mind, a greater number of lenders offering 100% LTV mortgages has to be the way forward. In fact, Skipton’s initial foray shouldn’t really be a surprise to anyone, given where we’ve been moving towards in recent months with the market and higher LTV products.
Over the last six months we’ve seen a steady increase in 95% LTV mortgages, for instance, as lenders have needed to look beyond what they might consider to be their ‘bread and butter’ lower LTV lending, and to broaden their reach and grow their business levels.
Lest we forget, there are pretty much only two options available to lenders in order to do this – either they cut rates which is difficult in the current interest rate environment, or as mentioned, they seek to provide more mortgages to more eligible customers.
Hence, why we have seen lenders targeting the first-time buyer market in bigger numbers. Last year, first-timers were the biggest purchaser borrower demographic and it therefore makes sense to focus on the obvious demand here, particularly those who (up until now) couldn’t access the mortgage market because they were struggling to save for the deposits needed.
In the first few days since launch, we’ve spoken to a handful of customers who are interested in the product as a means to get them on the ladder, and it appears to us that there should be little holding back other lenders in following the Skipton’s lead.
For some reason, in the aftermath of the Credit Crunch, 100% LTV mortgages were lumped in with sub-prime and self-cert at higher LTVs as somehow having contributed to the Credit Crunch.
The reality of the situation is that the vast majority of 100% LTV mortgages didn’t move into arrears, were taken up by individuals with strong credit scores and the like, and this was a sector of the market that worked well, particularly for those who couldn’t ask their parents to simply provide them with their deposit monies.
Plus, of course, as rents have sky-rocketed, the reality for many wannabe first-time buyers is they are currently paying far more in monthly rental costs now than they would be for their first mortgage, and this Skipton product nails it in terms of helping those private tenants onto the housing ladder.
For advisers there should be no concerns about being active in this space. Of course, we’ll have to explain the potential threat of negative equity fully to a client, but that’s our job and in itself, the fact Skipton is launching this product now suggests it has a positive view of where house values are moving over the coming years.
There are many fundamental reasons for this, specifically a lack of supply, and we should not be surprised that the Government is again considering a replacement for Help to Buy given the impact its demise has already had on the building of new homes, amidst a general lack of schemes to assist would-be buyers. All this leads us to a place where house prices do not fall significantly – indeed we’ve seen that being the case with recent monthly moves in the house price indices.
Overall, therefore, this move should not just be viewed as a positive but an absolute necessity in today’s market. 100% mortgages should be able to support a larger number of first-timers who are currently renting and therefore can’t save a deposit, and from our point of view, Skipton should not be left to be the lone product option in this part of the market for long.
Rory Joseph is Director and Sebastian Murphy is head of mortgage finance at JLM Mortgage Services, the mortgage and protection network
