It seems fairly obvious but the most common benchmark is bound to be what prevailed pre-Covid-19, despite many economists and commentators suggesting this is a ‘normal’ that will never come back and we should concentrate on the ‘normal’ that will play out over the weeks and months ahead.
That said, it’s entirely natural to look back to the point before everything changed, and to try to assess whether the post-lockdown period is going to look anything like that market. Indeed, it may well engender a significant amount of both adviser and consumer confidence to see some of the fundamentals of our market looking like they did back in January and February of this year.
We’re already seeing lenders like Foundation Home Loans talking about returning their product ranges to a pre-pandemic structure because that suggests the market has moved on significantly and, for the specialist lenders particularly, there is a very great need to show their appetites are returning and they are not having to continue for long with restricted offerings.
It’s clear from the latest product data that options are on the rise, albeit still below that which had become the norm back pre-March. The latest statistics from Mortgage Brain, for instance, reveal that products are now above the 9,000 threshold – their highest level since the lockdown was introduced when we saw a rash of products withdrawn from the marketplace.
That said, numbers are still over a third down on the nine-week average number up to 16th March, and one suspects there will need to be a significant change in lender mindset at higher LTV numbers before we begin to even get close to that sort of level.
And therein lies the rub, because it’s patently obvious that while we are seeing product growth at lower LTVs, what’s happening higher up the risk curve is a very different picture indeed.
Let’s look again at the Mortgage Brain statistics which show a concerted percentage increase in ESIS volumes in all LTV bands up to 80% LTV, while alternatively showing drops of 7.1% for 85-90% LTV, and 6.6% drops above 90% LTV. That in tells a story about how lenders appear not to have got to grips with their high LTV product offerings and the severe fluctuations are clearly not helping advisers or their clients.
Lenders have been active in the high LTV space but, quite frankly, not enough of them, which has led to those few being inundated with applications. That’s simply not feasible in order to maintain service so we’ve seen lenders pull out, only dropping in for limited time periods, with limited tranches each day to lend, which effectively means we have a high LTV market pretty much held together with sticking plaster.
When you hear of advisers getting up at 5am in the morning to try and secure their clients high LTV funds, only to be waiting hours on end for no reward, then you know that something has gone wrong. I’m not blaming those lenders who are doing this because they may feel they have no choice but it can’t be a sustainable position for a long period of time.
Which leaves us to what might be done to sort the problem out. Well, it’s obvious that lenders are concerned about high LTV lending because they are not sure what prices/valuations are going to do in the near future, and you also have a bruised economy with uncertainty about the job prospects of millions of people. Higher-risk lending without significant levels of equity/deposit seems like a risk not worth taking at the moment for many lenders who would ordinarily be active here.
In July we are due to have a series of announcements from the Chancellor, Rishi Sunak – the rumour is that we’ll see cuts to VAT, potentially cuts to stamp duty as well. The government might also wish to look at what is happening in the high LTV space, because it may well need a government guarantee to give lenders the confidence to be active here. It’s not without precedent of course – the mortgage guarantee element of Help to Buy effectively did this before that part of the scheme was shut.
I think we all understand just how important the constant provision of high LTV mortgages is to the overall market, not just for first-time buyers but for all types of homeowners. If we can get stronger activity here then we open up a large chunk of the market, with all the extra possibilities this provides to advisers in other product areas such as conveyancing.
There is real progress being made, but not at all levels, and arguably not in one of the most important parts of the market. Temporary government guarantees and support could get a lot of lenders to enter the race, rather than having to take part only to quit just a few metres into it.
Mark Snape is managing director of Broker Conveyancing