AmTrust’s latest Mortgage Loan to Value (LTV) Tracker has revealed that first-time buyers with a 25% deposit have access to over six times as many mortgage products as those who are only able to put a 5% deposit down.
The Quarterly Tracker, which looks at the current real product availability for first-timers as well as the average monthly mortgage payments they would pay on average loan levels for those with both a 5% and 25% deposit, shows that higher LTV borrowers are benefiting from an increase in product choice but that compared to their lower LTV counterparts are offered far fewer options.
Also, the monthly mortgage cost disparity for average first-time buyers seeking averagely-priced homes continues to be high, with 95% LTV borrowers continuing to pay close to 50% more for their mortgages than those at the 75% LTV level.
Those with smaller deposits pay (on average) £780 per month/£9,360 each year, while those with 25% deposits pay (on average) £521 per month/£6,252 per year.
The cost of mortgages has however fallen for both 75% and 95% LTV first-time buyers with the Tracker revealing that borrowers continue to benefit from increased competition amongst lenders in this mortgage space.
The average mortgage rate for a high LTV mortgage product dropped from 3.61% in Quarter three last year to 3.23%, while there was a very slight drop in average rates for 75% LTV borrowers, with a quarterly fall from 1.75% to 1.74%.
The rate differential between 75% and 95% LTV loans has continued to narrow, down to 1.49% from 1.86% in Quarter 3 and 2.21% in Quarter 2 last year.
AmTrust puts this down to more lenders willing to look at high LTV borrowers, and an increase in interest in more niche mortgage product sectors in order to make up for falling purchase activity and an anticipated drop in overall activity as more borrowers opt for longer-term fixed-rate remortgage options.
The mortgage insurer believes that, with ongoing political and economic uncertainty generated by ‘Brexit’ meaning more potential purchasers are adopting a ‘wait and see’ approach, lenders will continue to look for more first-time buyer business and will maintain competitive rates at all LTV levels in order to secure this.
It believes many more lenders are likely to be willing to lend to higher LTV borrowers in order to secure first-time buyer business which can potentially ‘stick’ on their mortgage books for many years.
Greater appetite to lend to first-time buyers with small deposits continues to translate into greater product choice for 95% LTV borrowers, with the latest iteration of the Tracker showing an increase in mortgage options across both two-year and all-term options.
The AmTrust LTV survey continues to review the number of actual product options available to first-time buyers with either a 5% or 25% deposit based on the price of an average first-time buyer house from UK Finance figures, the price of an average house as outlined by the December 2018 Halifax House Price Index, and the price of a house at the starting tier of stamp duty land tax, £300k. Below this amount first-time buyers do not need to pay any stamp duty.
In order to do this, AmTrust uses one of the online mortgage search engines which includes deals available to both mortgage advisers and direct-only.
The latest research shows an increase in product numbers across the entire 95% LTV product sector, but a fall for all 75% LTV options.
Two-year product options for 95% LTV top 100 for the first time across all three scenarios, while those looking at all mortgage terms and options, have more than 240 products to choose from.
But, while the differential between 95% LTV and 75% LTV products has been narrowed, the Tracker shows that those lucky enough to have a bigger deposit have access to over six times as many products as their lower deposit counterparts.
Over 700 products are available to those wanting a two-year deal, while this number more than doubles to over 1,500 products for those reviewing all terms and all product options.
AmTrust believes this ongoing and significant product choice disparity can be closed even further if more lenders reviewed their lending activity in this area, and used a credit-risk mitigant such as private mortgage insurance to boost product options and cut rates far closer to the level for lower LTV products.
Patrick Bamford, business development director at AmTrust Mortgage & Credit, said: “Clearly, over the last year we have seen a renewed interest in the high LTV first-time buyer mortgage market from a number of lenders, and this increased competition has led too far greater product choice plus more competitive rates.
“To see the average 95% LTV mortgage rate not too far away from 3% is most pleasing, and the differential between higher and lower LTV products has narrowed significantly, especially in the second half of 2018.
“It should however not be forgotten that the average rate for a 75% LTV first-time buyer is 1.74% and product choice for this group of potential borrowers numbers many hundreds, if not, thousands, compared to (at best) 200-plus for those with just a 5% deposit.
“Indeed, there are six times as many products available for 75% LTV borrowers and this disparity is far too great. We have seen more lenders launching products in this marketplace, and we suspect that as the ongoing uncertainty of Brexit impacts further on the housing and mortgage markets, that we’ll see many more lenders looking to diversify into this area. But, at best, this might add tens of products to the choice available, rather than the hundreds which might signal a real resurgence in the first-time buyer/high LTV mortgage market.
“Lenders do have the tools at their disposal to mitigate their risk in this area and to continue to help bring rates down and product numbers up, and we would urge them to follow the lead of many building societies that utilise private mortgage insurance in order to improve their activity in this vitally important part of the market.”