Government intervention in the mortgage market is always going to have its critics. After all, we’re a free-market economy, correct? Surely if the market itself can’t find a solution to certain problems, then there are very good reasons for that? The market decides how the market wants to function? Doesn’t it?
However, it had been clear for some time that, when it came to the crucial area of high LTV mortgage provision, the market was not functioning. Mortgage products which historically have been the entry-point for thousands upon thousands of would-be home owners, were nowhere to be seen, and given that the housing market relies so much on those high LTV products, this was beginning to be a significant problem.
Now, some might argue the intervention of the government in the form of its mortgage guarantee scheme, is yet another sop to the first-time buyer market who have had plenty of support in recent years. But, to my mind, this intervention goes beyond this and was a necessity.
The point is that the 95% LTV mortgages launched as a result of the government scheme, and it has to be said, those launched which are not utilising that scheme, are not just open to first-time buyers. The government could have made this a stipulation of the scheme – much like it has insisted that any product ranges launched should contain a five-year fix – but it has not.
And there is a very good reason for this, because – with housing supply as it is – there has been a recognition that high LTV products are not just in demand from first-timers. We have a whole band of existing homeowners living who have been unable to move up the ladder, which in normal times would free up further supply to get first-timers in as well.
The decision to support lenders in offering 95% LTV loans is as much to do with those existing borrowers as it is first-time buyers – you might even argue it is more to do with them. After all, prior to this intervention, there were effectively only five 95% LTV products available, and all of them required some sort of parental/Bank of Mum & Dad support – how likely would it be that existing homeowners would be coming armed with that? I’d suggest highly unlikely.
Now, let’s be realistic about this Since the announcement we have seen a growth in the number of 95% LTV products coming to market, and as a result we as a business have seen a marginal uplift, but it has not been earth-shattering.
This isn’t really the point though because this level of activity will undoubtedly grow and what we should be hoping for as housing/mortgage market stakeholders is that we get to a point where we have a fully-functioning and stable high LTV market. One which is able to stand on its own two feet without Government support.
The fact that lenders have already launched products outside the scheme shows that is possible, and it also shows what was required was more about an injection of confidence, rather than any significant injection of tax-payers’ money. There is an argument that lenders would have come back ‘naturally’ to this market at some point during 2021, but the government action has undoubtedly acted as a much-needed catalyst and we’ve got to this point far quicker than we would have done without it.
Confidence is such a vital asset within our market, as is the ongoing ability to move people up the ladder. Government intervention of this kind is therefore a real positive because it keeps the housing market moving, and I would suggest, in the grander scheme of things adds far more to the economy than is taken in taxpayer money. There will always be critics that the money could be better spent elsewhere, but in this case, I think I’m going to respectfully disagree.
Simon Jackson is managing director at SDL Surveying