Rob Clifford is chief executive of Stonebridge
It is far too early to talk about oaks growing out of acorns, in terms of high loan-to-value (LTV) product innovation and adoption, but I think we can already see very positive early signs and to be able to hope for a much more sustainable array of products in the months and years to come.
A quick look at the mortgage best buy tables reveals the sizeable difference in the 95% LTV market now, to what it was before the government intervened back at the March 2021 Budget.
Prior to that, advisers had a small handful of 95% LTV products to choose from for those clients with only a 5% deposit to put down, and even then, all those products attached the requirement that a family member acted as guarantor or supported the borrower financially. For most borrowers, these products were very much outliers which meant that the 95% mortgage solution was an unattractive or unavailable one.
As I write this article in the early part of August, the shift has been quite dramatic. For first-timers seeking a property valued at £250k with a £12.5k deposit, there are now close to 170 products available, and I suspect if you took individual cases to certain lenders they would be willing to look at them individually and take a view on the borrower/property concerned, etc.
It means a world of difference and, although the market is still not at the quantity of products seen pre-Lockdown 1 last year, it does undoubtedly give a boost to first timers who are not able to rely on the Bank of Mum & Dad or can’t get to larger levels of deposits.
With average property prices for most indices now over £250k, a 10% deposit might deliver plenty in terms of access to lower-priced products and a far greater range to choose from but given that huge numbers of borrowers started their mortgage journey with a 95% loan, it has felt important that we provide future generations with the same opportunity.
And, in this regard, the impact of the government’s intervention cannot be under-estimated. There is a lot of talk about the Guarantee scheme in terms of its cost, its inflexibility, whether it’s the best use of taxpayer money, and whether it actually leads to more expensive products for those lenders taking part, but the one point I would make is that such criticisms are a little irrelevant. The fact is that without this Scheme we are highly unlikely to be where we are now.
Within days of that government announcement in March, 95% LTV products were already being launched – not entirely by lenders taking part in the scheme but on the contrary, by lenders who would stand outside it, and were undoubtedly buoyed by the fact there would be a 95% LTV market ‘created’ by these measures, and they could essentially get ahead of the curve (and competitors) by coming to market early with their own solutions.
And, as the weeks have moved on, so has the market and so (very importantly) has the competition. Back in April and May lenders were launching 95% LTV rates in, or around, the 4% mark; look at the best buys now and not only are rates in the low 3%-range, but there are both fixed and discounted options beginning with a 2.
In and around this we have other schemes being launched, again outside the government guarantee one. Specifically, there’s the Deposit Unlock proposition for new-build and which looks likely to gain a number of building society participants with these lenders utilising private insurance-backed guarantee products to help first-timers specifically looking to purchase a brand new property.
Would we have seen anything like this without the government intervention? Perhaps, but it has certainly acted as a catalyst and got us to these product offerings far quicker in my opinion.
Now, the big focus has to be on further growth and future sustainability. The government scheme is only due to last until the end of next year and what we don’t want is that dreaded ‘cliff edge’ to kick in when that happens.
I am however positive that the lending community will not drop the ball on this one – the sheer numbers who are already operating without reliance on the Government scheme should be a sign of the confidence they have to keep these products flowing, and there is no doubting that the demand will continue to be there for many years to come. Our mortgage market has a borrower demographic which has a clear demand for 5% loans; let’s hope that lenders maintain a decent supply.