We’re constantly told that the mortgage market changes fast, and if there was any doubt about this, then you might want to look at how quickly the narrative around high LTV lending has developed since the start of the Covid-19 pandemic and specifically post-lockdown.
Just this week I’ve seen a number of headlines in the mortgage trade press all pointing to ‘X lender cuts high LTV rates’ or ‘Y lender pulls high LTV deals’ or ‘X lender dips back into high LTV lending’.
Almost universally – with a couple of notable exceptions – the references to ‘high LTV’ are not as we would know them pre-pandemic, that is in the 90%/95% bracket, but actually 85% LTV. You can see how far we have come in short space of time when the market’s default high LTV mark requires the potential borrower to have 15% equity or deposit.
Of course, I’m doing some lenders a slight dis-service here, because there are still 90% – and to a much lesser extent – 95% mortgages available, but advisers are having to be very quick to pick them up given they tend to be available only for a limited period and at limited tranches of funding.
That said, better some than none, and I certainly commend those advisers who are getting up early and essentially busting a gut in order to try and find product solutions for their traditional ‘higher LTV’ customers. This is no easy job and, if we are to judge the outlook for high LTV mortgage availability, we are not likely to say it will change anytime before the end of the year.
2020 has been the year of the ‘new normal’ and the mortgage world is certainly not immune from that. So, as mentioned, here we have our new normal for ‘high LTV’ and it is set at 85%.
Now, to the outsider, this might not seem like a big deal but that all-important 5% difference can be huge, and currently it’s making the difference for thousands of would-be purchasers who ordinarily would like to take advantage of the stamp duty holiday but find these new lender norms working against them.
Halifax’s recent house price index suggested the average price across the UK is now £241k; at an 85% LTV that requires a deposit of just over £36k. Of course, we know there’s really no such thing as an average ‘UK’ price so what about the figures regionally?
Well in London, those with 15% deposits would be looking at just shy of £70k; in the South East just over £45k; even in regions where we might say prices are more modest, the numbers are still large, such as in the East Midlands where a borrower would require slightly below £30k. It is perhaps no wonder many potential first-time purchasers are thinking a purchase is out of the reach, and why large numbers are still having to turn to the Bank of Mum & Dad (BOMAD) in order to help them reach anywhere near those levels.
The further fly in the ointment comes with the cost of these mortgages, should they be able to find enough deposit to secure them. Recent data from Moneyfacts suggests that the biggest monthly jump in pricing has been seen at the 85% LTV tier level – two-year fixes have gone up on average by 0.19% month-on-month to 3.12% while five-year fixes have increased by 0.18% to 3.25%. Moneyfacts says this is a 0.65% and 0.45% increase on rates a year ago.
Now, of course, we are in a very different environment to that of November 2019 and a considerable amount of water has gone under the bridge since then, but at some point this ‘new normal’ has to return to a pre-lockdown normal, otherwise we are likely to see something akin to a catastrophic drop-off in the number of first-time buyers coming to market.
At present the market is doing very well thank you very much with all the activity but post-stamp duty holiday what are we likely to see if 85% ‘high LTV’ mortgages remain the norm? A market-wide cliff-edge followed by a steep fall in first-time buyers?
We await, of course, what the government might have to say and do about this, but there’s been little detail about its proposed new scheme to help first-timers, and if lenders’ appetites for 90/95% LTV mortgage lending continues to run at current rates for the duration of next year, then it won’t need me to tell you what this will mean for bringing new blood into the market.
Being a realist, I suspect nothing will change until 2021. I’ve read some commentators being positive about a return to higher LTVs then due to renewed targets and the like. But, we can’t guarantee it, unless we find a way to guarantee those mortgages – be it state-backed or private insurance – and lenders gain greater confidence that they are not running too high a risk by taking on this business.
Until then, it’s likely that high LTV stays where it is, rates are likely to continue upwards, and BOMAD will be called upon in greater numbers. What happens when that ‘lender’ runs out of cash is anyone’s guess.
Patrick Bamford is business development director at AmTrust Mortgage & Credit