First-time buyers might often wonder what the market is doing on any given week, let alone any given month. The recent missive from the Bank of England’s Financial Policy Committee (FPC) suggested there had been “a gradual loosing in credit conditions in the mortgage market in recent years” with the suggestion that lenders had been conducting significant amounts of high LTV lending at cheaper prices.
As you can imagine, this could be construed as something of a ‘free for all’ when it comes to the provision of high LTV mortgages, which in turn could be seen as ‘boom times’ for those potential borrowers who only have small deposits. However, both borrowers and advisers might well look at this review and wonder whether it really chimes with reality?
For a start, what are we defining high LTV as? If it’s the traditional 90%-plus loans then I’m not quite sure we can say there has been a raft of lending at this level; indeed if we’re calling high LTV, 95%-plus, then I’d suggest the FPC has even less to worry about in terms of activity.
Now, some might suggest that recent product number increases are a sure sign that more lending activity at a high LTV is taking place. Moneyfacts’ research revealed that the number of 95% LTV mortgage products on offer topped 300 last month for the first time in 10 years.
However, I think we all know that there is no real correlation between product numbers and the amount of lending that takes place, especially when you factor in the affordability constraints that first-timers are facing. Let’s be honest, with some notable exceptions, the last few years hasn’t exactly seen a rush to offer high LTV loans, and since the Help to Buy 2 scheme ended – which offered some juicy incentives for larger, mainstream lenders – there’s been even less activity in this area.
Our own LTV Tracker research – conducted quarterly – actually looks at the average price of first-time buyer homes, and the products available to them at both 75% and 95% LTV levels. It regularly shows a huge discrepancy in the product availability for these different borrowers; while those who can muster 25% have access to many hundreds, if not thousands, of products, those with just 5% are often lucky to make it into double figures. Certainly nowhere near 300 – which suggests that lenders might publicly be ‘offering’ high LTV loans, but the real appetite to lend in that space is somewhat lacking.
Which might make you wonder why the FPC is getting so ‘hot under the collar’ about a perceived increase in high LTV lending? Well, there is a perception that this is ‘risky lending’ – indeed lenders already face significant curbs when it comes to this type of business anyway, and the FPC seems to believe that lenders active in this space are pushing income multiples higher and higher, and lending for longer periods.
This regulatory pressure does provide real cause for concern in a marketplace which certainly requires high LTV products if we’re not going to see homeownership become purely the preserve of those who can access family support. The FPC perhaps fails to realise that not everyone has access to the Bank of Mum & Dad, and we are in danger of sidelining those genuine first-time borrowers, who want to buy with a small deposit, can afford the mortgage, perhaps pay even more in rent at the moment, but have a limited product option to choose from.
If lenders are forced to access, such first-time buyers will find themselves swimming in an even smaller pool for high LTV loans, and having to pay much higher prices for them. Again, our LTV tracker research regularly shows that those who can access 95% loans are paying, on average, two-thirds more than their 75% LTV counterparts – upping the financial reserve requirements for lenders in this space is likely to make this differential even wider, when perhaps the FPC should be urging lenders to utilise private mortgage insurance as a credit risk mitigant, to actually lessen the perceived risk and bring the pricing closer together.
Finally, I recently read that, according to the ONS, the net property wealth of the baby boomer generation is 17 times greater than those aged between 30 and 32. That’s £165k compared to £10k – a decade ago this figure was just six times more. You can understand why the younger generation feel aggrieved that the same opportunity presented to their parents and grandparents, is simply not there for them, and we appear to be on the cusp of the regulator making it even more difficult for them to achieve their home-owning ambitions. ‘It’s not fair’, doesn’t really seem to do it justice.
Pad Bamford is business development director at AmTrust Mortgage & Credit