The mortgage market has seen more than its fair share of ups and downs in recent years.
In a way, I could probably compare it to watching England playing Test cricket. For those of you who have been burning the midnight oil recently, watching the first test events unfold at the GABBA in Australia, this will all seem very familiar.
By the time you read this, that test will be over, however as I write England appear to be playing themselves back into the game after what can only be described as a disastrous first couple of days, perhaps summed up by a first ball of the innings Test duck for Rory Burns.
However, as can so often happen in sport, things can change all too quickly. I don’t want to pre-empt the result – as I’m also conscious that one good day may not be enough to save the test – but after the third day things were looking much more positive than perhaps any England fan had a right to feel.
That sort of sums up my feelings for the mortgage market over the course of the last year, particularly in terms of the high LTV product space which is where we have most interest.
A year ago, it was looking like England’s first day at the Ashes, incredibly disappointing with not much positivity on the horizon. A few months later, that all changed with the government’s decision to (re)introduce its Guarantee Scheme and now we appear to have a functioning 95% LTV product sector, albeit one which is still behind the pre-Covid curve.
That is an important point to consider because while clearly we are all delighted to have many more options to offer those with small deposits, we’re not quite back to the point we were before the pandemic changed all our worlds.
And the 95% LTV market does remain pretty far behind what is available for those fortunate enough to have even double the deposit, let alone those able to put down 25%.
My most recent search of product availability and rate – conducted on the 9th December – focused on first-timers who were able to put down a 5% deposit for an averagely-priced house (according to Halifax) valued at just shy of £273k.
95% LTV products for these borrowers currently number 214, of which unsurprisingly 189 are fixed rates. The lowest two-year fix available is priced at 2.37%, while for five-year fixes it is 2.84%. Again, I want to stress the positivity of this position compared to what we had last year – half a dozen or so products all requiring parental support, priced at 5%-plus.
But a quick comparison with higher deposit levels shows there is still a marked differential. Being able to put down a further 5% deposit opens the mortgage market up to 506 products, of which 438 are fixes. The lowest two-year fix-rate is 1.64% and five-years start at 2.31%.
And finally for those uber-fortunate borrowers who might stretch to 25% deposit, well the mortgage world is effectively your oyster. 1,594 products are available, of which 1,339 are fixes, with the lowest two-year rate at 0.99% and five-years starting at 1.28%. Go back a month or two ago and those rates were even keener.
To put this into context, were the 5% deposit borrower to secure that lowest rate for the life on their mortgage, they would be paying over £113k more in interest for that mortgage when compared to those borrowers who can put down 25%.
Now, it might be argued that I’m not comparing apples with apples here, but you can see why those who have access to the Bank of Mum & Dad might be asking for a little bit more to help them save considerable amounts of money over the long-term. That is likely to remain a feature of the market in the months and years to come.
However, let’s end positively. As mentioned, rate cuts at lower LTV levels have been far less frequent in recent months – in fact they’ve been going up; lenders however are concentrating on making their high LTV mortgages far more competitive. Back in May, the average five-year fix was up at the 4-5% mark, now you can get those deals below 3%.
Lenders clearly see a market to be secured in high LTV lending, whereas a year ago they seemed to see everything else except that. We have come a long way in a year and we now need to ensure this high LTV product space continues to benefit from new funding, new products and keener rates. Anything else just wouldn’t be cricket.
Patrick Bamford is head of international business development at Qualis Credit Risk, part of AmTrust International