As we motor towards the end of the year, it’s important to reflect on just how volatile the market has been in 2022, particularly for first-time buyers and other movers reliant on high LTV lending.
In a sense it has been a year of extremes, particularly in terms of lender engagement but also with regards to the types of products being offered to those seeking 90%-plus LTV.
Prior to the ‘Mini Budget’ this was a relatively steady marketplace, with fixed-rate offerings – which clearly appeal to first-timers seeking mortgage payment certainty – being the most competitively-priced.
Then we had the Liz Truss/Kwasi Kwarteng ‘episode’ following which product numbers were slashed, rates were hiked considerably, and fixed-rate offerings were deemed too difficult to price, particularly shorter terms.
Thankfully we have been able to move on from this, but it will also be clear to many that pricing – which jumped considerably in a short space of time – will take much longer to get back to pre-‘Mini Budget’ norms. And, with uncertainty, particularly about Bank Base Rate, we might be waiting longer than we would like to get to those pre-September levels.
However, there is good news to report as we are about to take leave of 2022. Each month I look at the product numbers in the 95% LTV space based on those wanting to purchase the average-priced property as detailed in the most recent Nationwide House Price Index.
As you will no doubt have seen, this in itself made the headlines recently as it showed the biggest monthly fall since just after the first Covid lockdown back in June 2020. Dropping 1.4% month-on-month, the average property is now valued at £263,788.
On this point, it is worth noting that a relatively benign house price environment throughout the next 12 months should not be something to be feared. We have had two years of very strong house price growth and if prices remain somewhat subdued then this may allow more first-timers to realise their ambition to get on the ladder, especially if inflation also falls, rates follow, and they are able to get over the no inconsiderable deposit obstacle.
If they can get to that point relatively soon, then I’m pleased to report there are a growing number of product options to choose from in the 95% LTV band. Admittedly, we are not at pre-September levels but in the last month the numbers have gone up from 106 to 114.
There were 176 at the start of September so we still have some way to go to get back to this, however progress has been made. As you might expect, the vast majority of these 114 are fixed-rate mortgages – 94 – but the ‘cheaper’ pricing currently comes from the 20 discounts/variable/trackers.
Currently, at the time of writing and according to the ‘best buy’ tables, Loughborough BS lead the way with a 3.29% three-year discount, while the cheapest fix is a five-year offering from Accord at 5.54%, while the cheapest two-year fix is currently 5.75% from the Principality – last month it was 6.4%.
We are clearly still a long way from the early weeks of September when borrowers could secure a two-year fixed-rate below 4%, but as mentioned, pricing has continued to fall in the past couple of months, and given where swap rates are – and in anticipation that BBR might not need to be raised by as much as first thought – I am hopeful pricing can continue to track down, particularly as we start a new lending year in just a few weeks’ time.
In that sense, we await the next MPC meeting with some interest as it might tell us a great deal more about where rates go in the next 12 months. Certainly, the mood music appears to be that inflation will begin to fall in 2023, and rates will follow in the same direction.
I have learnt throughout my career not to be overly confident in market predictions but the above would certainly be a positive for all mortgage borrowers including first-timers.
Overall, I am cautiously positive about the mortgage options for high LTV borrowers next year. It will be interesting to see how the closure of the government’s Guarantee Scheme will impact on product numbers but, given a considerable number of lenders, are not active in the scheme anyway and they will be looking to maximise their purchase business, my view is that most will continue to be active in this space.
It’s clearly needed as the deposit levels required at even 10% are substantial for the average first-timer, let alone what they might have to save in order to get to 20/25%.
We need a vibrant high LTV sector to allow those who can’t rely on the Bank of Mum & Dad, or any kind of family support, to still have access to finance and to fulfil their ambitions to buy. Most generations were able to do this, why should this one be treated any differently?
Patrick Bamford is head of international business development at Qualis Credit Risk, part of AmTrust International