It has been very interesting to read about (and into) the hullabaloo that has engulfed the mortgage market over the last few days since the launch of Skipton’s 100% LTV mortgage.
In a way, this of course hasn’t been a ‘story’ confined merely to the pages of our trade media, and the wider national personal finance pages, and that’s because it raises questions and issues which have a much broader focus/remit and a societal impact based on where UK housing currently sits and how it can (or can’t) be accessed.
After all, we have millions of people currently renting in the private rental sector (PRS) right now, many of whom may – perhaps up until this point – have felt they had little to no chance of buying a first home of their own.
That they are destined to stay in rental accommodation for the rest of their lives and that, without access to a Bank of Mum & Dad, they have no means of securing even a 5% deposit, which – up until now – has been the minimum they required to even start on a house-buying journey.
For those people, this product launch may well change that narrative to a point where buying a home is not the pipe dream they believe it to be, and where they have a genuine hope that home ownership is not beyond their reach.
But, and you have probably sensed this is coming, there are still so many barriers and obstacles to entry, that part of me feels you don’t want to give false hope to those individuals, simply because one lender launches a product that takes into account rental payments and doesn’t require a deposit.
Of course, the likelihood is that more lenders will follow, although just how many remains to be seen. There will, understandably, be some concerns – and these have already been expressed – about just how this fits with ‘responsible lending’, what it might mean in a house price environment in which we’ve seen some significant falls recently, and of course, what that might mean in the future for advisers who recommend such products.
I have sensed a mixed response from advisers on this. For every one which has fully welcomed this product as something of a game-changer, I have read comments suggesting it will only help a minimal number of borrowers and it comes with a significant level of risk for all those involved – borrower, adviser and lender.
However, I’m also acutely aware that there is undoubtedly something wrong with a system which doesn’t take into account rental payment history when it comes to determining affordability, especially if – as in so many cases – the amount being paid in rent each month is actually more than a mortgage payment.
One wonders if there isn’t a half-way house that can be achieved here, and it doesn’t involve would-be borrowers not having any skin in the game at all, and potentially having no second thoughts about walking away from a property/mortgage if it does become unaffordable, or it is worth less than they bought it for in the months and years to come.
I read a recent piece from Patrick Bamford at AmTrust/Qualis which asked why the industry felt the need to ‘move up’ in 5% LTV thresholds. Why, for instance, we had to jump from 95% LTV to 100%? Why we couldn’t look at incremental LTV increases – 96/97/98/99% – which would introduce a skin in the game element that might ultimately work out better for all involved.
Of course, this is a 5-year fixed-rate product and it will be hoped the risk of the property value falling below what was initially paid for, will be eased by that longer-term. But there are no guarantees on house prices, and those involved could find themselves in negative equity if prices do continue on a downward trajectory.
That negative equity aspect should obviously be clearly outlined to all those considering a 100% LTV mortgage, particularly as I say, in this current environment.
So, while I understand the media headlines the product has generated – and I suspect the Skipton will think it’s been worth all of those regardless of the level of business they carry out on this product – there is absolutely nothing wrong with being ultra-cautious about this, about what it might mean for first-time buyers, about what position it could put them in, and indeed about what it will mean for the advisory profession who will be asked to explain this and recommend it.
It could be the game-changer some are suggesting it is, but it could also present false hope to many and ultimately deliver an end result which is not to the borrower’s satisfaction, particularly if they want to move up or out and find their mortgage exceeds the value.
Bringing new blood into the market is vital and, we’re all aware of what a boost an increased number of first-time buyers can deliver to the sector and advisory businesses. They can turn into lifelong clients and it’s not just the mortgage they require advice on. However, marrying them up with 100% LTV mortgages will need to be fully understood by them, and ultimately the risk is going to need to be understood by all. Including advisers. You’re certainly going to earn your corn on this one.
Mark Snape is chief executive officer of Broker Conveyancing
