Yesterday saw Virgin Money temporarily withdraw its 95% loan-to-value (LTV) fixed rates for new customers as it reviews its proposition sparking fears that other lenders could follow suit.
With economists and the Office for Budget Responsibility (OBR) forecasting house price drops of up to 9%, and in some cases significantly more, some brokers have expressed concerns that high LTV products could go the way of the dinosaurs.
But are we about to see the start of a trend? Gindy Mathoon, founder & senior mortgage broker at Create Finance, is worried that could be the case.
He said: “One lender starts a trend and others then follow suit. It’s pretty much like Tiktok.
“It’s a bit hasty. This shows that they do not have confidence in the market and expect a bleaker outlook, especially around house prices.
“We’ve seen interest rates decrease over the past few weeks, which has probably seen borrowers reignite their desire to purchase a home as funding has started to become cheaper than it was six-eight weeks ago.
“For Virgin to withdraw their 95% LTV products is a very strange move. Let’s hope this is a trend that is short-lived.”
Paul Neal, mortgage & equity release specialist at Missing Element Mortgage Services, said the move was a reasonable one from lenders and one that could become more common.
He said: “As rates increase, so does the risk for lenders. Lenders, understandably, are also concerned about falling house prices, which again exposes them.
“As a result, we may see a number of lenders follow suit as the purse strings tighten and the cost of living becomes more expensive.
“A growing number of lenders may start to see 5% as too small a cushion in the current economic climate.”
And Graham Cox, director at Self Employed Mortgage Hub, agreed that more withdrawals are likely from lenders: “It’s likely many other lenders will follow suit and pull their 95% LTV deals, as the extent of house price falls become clearer by the day.
“But in a way, the lenders are doing borrowers with only 5% deposit a favour. If you lose your job and can’t keep up with the mortgage payments, not only will you lose your home, but if the lender can’t recover the full loan amount when selling the property at auction, they’ll continue to pursue you for the difference. Not nice.”
Meanwhile, Craig Fish, founder & director at Lodestone Mortgages & Protection, warned of the impact a reduction in 95% mortgages would have on first-time buyers, but he doesn’t think this is the start of a wave of withdrawals.
Fish said: “If more lenders start to pull rates at 95%, then this is going to have a dramatic effect on first-time buyers with only a small deposit.
“However, for now at least, I’m not convinced that this is going to be a market-wide problem. For example, you’ve still got the likes of Nationwide who are in fact reducing rates at this level of deposit.
“I think there’ll be greater visibility going into the New Year and believe that this move is more about managing workloads than a lender running for the hills.”
And Rhys Schofield, managing director of Peak Money, is with Fish in thinking it’s not the beginning of a wider trend: “One swallow doesn’t make a summer and Virgin conducting some pretty regular repricing doesn’t spell the end of the 5% deposit market.
“It looks pretty likely though that we’ll see a slight price correction of under 10% next year, which isn’t that scary in the context of 20% rises in the last two, and that will mean looking at how products are priced, but that doesn’t mean lenders are pulling out of high loan to value lending.”
