It’s fair to say the media has been dominated recently by talk of 100% LTV mortgages and what it means for first-time buyers and indeed the wider rental and owner-occupier markets.
In my view it’s very important to put this product offering firmly in the context of those it is designed to help – renters. And of course that is significant news for the buy-to-let market and all stakeholders.
Firstly hats off to a product which recognises tenants in all of this and acknowledges regular monthly rental payments as a strong source of affordability for a mortgage.
If you’ve been living in the PRS for any significant length of time and have been meeting those monthly commitments, then of course this should be taken into account if you decide to move into home-ownership.
It has always seemed slightly odd that residential lenders have not done this in greater numbers, or perhaps they have felt under significant regulatory pressure to be able to do this. Perhaps this most recent 100% LTV launch will see others recognising what tenants do month-in/month-out, and accept home ownership should not merely be the preserve of those who can access the Bank of Mum & Dad.
From what I’ve read, the product has been broadly welcomed with the obvious caveats – from the Bank of England no less – that this is not the perfect answer for all would-be first-time buyers, that the borrower could end up in negative equity, etc. All have been widely covered and I know advisers will be pointing this out to prospective 100% LTV borrowers.
Of course, and we’re already starting to see this, it’s going to be of interest to many tenants and I suspect advisers will have seen an increase in enquiries already, and there is further good news in that there are approximately five or six other lenders active in this space.
However, and here is perhaps the nub of this story, with only 10 or so products currently available, and I can’t imagine a huge amount of funding for them, this is not going to be a mass-market product which sees thousands upon thousands of tenants making the move across to ownership.
Which is not to say we won’t see more lenders and more products in this space, but they are already subject to limits around how much business they can write at higher LTVs, plus of course not every lender will have the appetite for this business, especially given the higher risk attached to it.
In that sense, if the market has visions of huge amounts of tenant demand seeping out of the PRS as waves of individuals buy properties instead, then I just don’t see this playing out. For a start, what properties are they going to buy? We’re all acutely aware of the property supply shortage, which I’m afraid to say is – judging by what the big housing developers are telling the market – unlikely to be boosted significantly in the years ahead.
This is even more acute when it comes to the properties first-timers tend to want to buy – new-build. And even with the option of a second-hand property, it may be current house prices put this out of reach, specifically for those needing a 100% LTV mortgage.
This most recently launched product limits the borrower to monthly mortgage payments which can’t exceed the average monthly rent they have been paying over the last six months, so your rent might not currently be enough to secure the mortgage you want/need.
And, for lots of tenants, the best course of action is still likely to be saving a deposit, so you are not curbed in your loan amount by your rent, and you can secure the mortgage you need to buy the property you want.
Therefore, while I think we would all welcome a broadening of product choice for first-timers, the attention placed on individuals and their housing choices still shows just how important the PRS is going to be for the UK housing market.
It needs to work hand-in-hand with home ownership, and there needs to be a connection which improves supply in both, so there is plenty of choice regardless of which path you are wanting to walk down.
The vast majority of tenants are going to remain so for the near future, so we must continue to support landlords as they provide them with quality accommodation at reasonable rent levels, that can satisfy both parties. As always, this is a far more intertwined situation than some would have us believe – we need both the PRS and home-ownership options, not one or the other.
Steve Cox is chief commercial officer at Fleet Mortgages