Lending at over 90% LTV remains limited, at just 4% of mortgages in Q3 2020, according to data collected by Zoopla.
This was down from almost 7% in mid-2019.
Mortgage lending at over 90% LTV has never returned to pre Global Financial Crisis levels, having reached 16% of all mortgages in 2007.
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According to Zoopla, the greatest benefits from increased availability of 95% LTV loans will be in the most affordable parts of the UK, such as northern England and Scotland.
Most lending is capped at 4.5 times the borrower’s income; borrowing at 95% LTV generates a larger loan size, so in high-value markets this may require a larger income than in lower value areas.
While many borrowers can afford to pay the mortgage for the average mortgage rate, they also need to pass a mortgage affordability test.
This affordability test is set at being able to afford a mortgage at 3% over the standard variable rate which is currently 3.6%; this means a new borrower may need to be able to afford a 6.6% mortgage rate.
When comparing repayments of a 95% LTV mortgage to pass a mortgage affordability test at a 6.6% mortgage rate versus the cost of renting a two or three bedroom home, would-be buyers in London and the surrounding areas would be spending 55% more than the cost of renting.
This is in comparison to the Midlands and North of England, where the gap between mortgage repayments and renting is much smaller, making it easier to transition to buying from renting
Richard Donnell, director of research and insight at Zoopla, said: “Supporting buyers with small deposits is key to widening access to home ownership for a part of the mortgage market that has been under-served.
“It is not a mass market solution and it’s vital we have a competitive market for lending up to 90% LTV for a healthy housing market.
“Greater availability of 95% mortgages will have the greatest benefits for buyers in lower value housing markets in northern England and Scotland where a 95% mortgage is more attainable.
“The scheme will have less impact for buyers in southern England where high house prices are a major barrier to being able to afford a 95% mortgage.
“This aligns to the levelling up narrative and policy approach of government.”
