When it comes to the recent announcement by the Prime Minister, Boris Johnson, of an independent review into the mortgage market, you could almost hear the firing of a starting pistol for our industry, as it seeks to get its head around what it is going to cover, how we will be engaged with, and what could be on offer to the industry and stakeholders as a result.
With this review due to report in the Autumn, it doesn’t necessarily give those charged with conducting this project much time to get around the industry, to consult, and to report back.
And, of course, the focus of the review remains slightly vague. Johnson talked about making it “easier to get a mortgage” and he also specifically talked about getting “better access to low-deposit mortgages” and learning from other countries around the world in how they might do this, and the lessons to be learned.
There was also talk about how best to move Generation Rent into Generation Buy and you can understand the political advantages of making policy which helps those who have not been able to do so yet, get on the housing ladder.
A number in the industry have already been putting their case forward on what a review should be looking at. We clearly have a range of experience in the world of high LTV lending, and we perhaps know better than most the problems which can develop if you do not have a range of such products available, particularly given where house prices have moved to.
I think it’s fair to say that without Government intervention last year, in terms of its Guarantee Scheme, we would probably be nowhere near the level of high LTV lending and activity we have seen over the past year or so.
It should undoubtedly be an imperative for Johnson’s review to look, not just at how this can be maintained – particularly given the Government scheme is due to end this year – but also how we can bring more lenders into this space, and the various ways and means by which they can begin to offer competitively-priced high LTV mortgages.
We know that many have been surprised at just how many lenders are offering high LTV products and not using any element of the Government guarantee, opting to use private mortgage insurance or take the risk on their own balance sheet. But, what we don’t currently know is whether this theme will continue when the Government guarantee is removed? We should not underestimate the confidence this delivered.
However, and it’s interesting to be saying this in the context of a Government-endorsed review that is likely to ask Government to do more, but there is also an element of asking the question, just how long can State intervention in this space continue? And is it desirable?
If it is perceived that high LTV lending will fall off a cliff without it, then of course, we may require even more, but as stated, many lenders are not utilising the Government’s own help, and therefore it should be possible to come up with industry solutions that deliver the same results, if not even better.
Just recently, you might have read about a new industry body, the Industry Panel for Financial Advice (IPFA), talking about what it believed was required in the first-time buyer space. It talked about protecting homes just for first-timers, raising awareness of Help to Buy alternatives, one of which – Deposit Unlock – we have been heavily involved in. Then it talked about the creation of intergenerational mortgages, innovative approaches to high LTV lending, and ‘low-start’ mortgages.
I’m not sure there is anything completely ground-breaking here, but certainly a combination of action in these areas would go some way to helping more first-timers get on the housing ladder.
You do however have to take lenders with you on this, and I would certainly caution about promoting the introduction again of loans to people who effectively had no ‘skin in the game’. History tells us much about the use of 100% mortgages, and then some, and how borrowers might react if they feel there is no financial damage to them by stopping paying their mortgage. It is not a road I would wish us to go down again.
But, mortgages for people with 5% deposits is absolutely a necessity, and we should be doing all we can to ensure greater levels of product choice and competition in this space, Greater use of private mortgage insurance can undoubtedly help, as can new Help to Buy-esque schemes delivered by the industry, plus of course, reviewing affordability measures to ensure people who can afford the mortgage are able to secure them.
We are very interested in speaking to those charged with this review, because there is certainly the potential to not just push the envelope a little, but to once again reinvigorate the high LTV market. By doing so, we will get more first-time buyers into their homes. Of that there is no doubt.
Patrick Bamford is head of international business development at Qualis Credit Risk, part of AmTrust International