I am writing this on the so-called ‘Freedom Day’ – in England at least – when all the measures which have been in place recently are rescinded. Like many, I am somewhat nervous about what this means in practice given the number of Covid cases currently, but I’m also aware that for certain businesses in certain sectors this has been a long time coming, and is desperately required.
In these times we have all been reliant on the government to try and steer the right path, and I’m not sure anyone would envy the task at hand. Who to support? What sectors to incentivise? Which to leave facing a worrying future? It might be seen as an impossible job, albeit one that is absolutely required and from which there is no shying away from.
The mortgage and housing market might look at what might have been inflicted upon it and think itself very grateful. There’s no doubting that the brief two-month Lockdown 1 period last year was ‘small fry’ when you consider that some businesses have literally only been able to open today – the first time since last March.
And we have also benefited, some might say, from Government largesse, particularly in terms of the stamp duty holiday and its extension, but also with other housing/mortgage incentives to keep the market not just ticking over, but positively booming.
Indeed, ‘Freedom Day’ for those seeking a 95% LTV mortgage was probably the 3rd of March this year – more commonly known as ‘Budget Day’ when the Chancellor announced his government guarantee scheme for high LTV products and the mortgage industry was provided with the catalyst it needed.
Since then, this part of the market has been transformed, with many lenders not even using the Government scheme to move back into the high LTV space. It does seem a shame that taxpayer money has been required to get this moving, but in terms of the difference it has made, we can’t underestimate the positives it has provided over the last four months.
For instance, again as I write, Moneyfacts has just issued its average rate levels across LTV bands. Two-year fixes at 95% LTV are currently averaging out at 3.71%; at 90% they are down to 3.15%. Three-year fixes at 90% LTV are down to 3.34%, while five-year fixes at the same LTV level are down at 3.48%.
To think we would be anywhere near a 3.71% average level for a two-year 95% LTV mortgage a year ago was inconceivable. Indeed, to think we would have a vaguely competitive market was something to think wistfully about because we had barely half a dozen 95% LTV products available and they all required some form of parental or guarantor support.
Now, with that catalyst, we have moved on at some pace. Again, at the time of writing (and using an online mortgage comparison site) for first-time buyers seeking a 95% LTV mortgage at the Halifax house price average for June of £260,358, there are 144 products of all types and terms. For two-year fixes alone there are 48 products with a cheapest rate of 3.25%.
This is significant in itself because, in the immediate aftermath of the Government announcement regarding its Guarantee scheme, we saw lenders launching products around the 4% mark. Now, just a couple of months later, the impact of increased competition – and the quest for greater levels of business in a post-stamp duty holiday environment – has brought those rates down by a significant amount.
Plus, at the same time we have had other schemes launched, such as Deposit Unlocked, which take that same guarantee concept and open it up to those lenders who want a private mortgage insurance alternative which is more flexible and arguably more economical.
And who is to say what might come next through during the rest of the year? There is a lot of talk about inflation levels at the moment, which might well mean the Bank of England has to act when it comes to Bank Base Rate. Will any action here filter into product rates? Might we already be seeing the high water-mark in terms of 95% LTV product price competitiveness? I tend to doubt it – lenders now want the business and are willing to price to get it, which bodes well for both advisers and clients.
The high LTV market has been turned around in a few short months – now we need to work on ensuring it works for a much longer time horizon.
Patrick Bamford is business development director at AmTrust Mortgage & Credit
