There is no requirement for a deposit as long as you can prove you have paid your rent for 12 months in a row, within the last 18 months, no doubt with other considerations as well.
Close to a year on, we have just had the launch of Yorkshire Building Society’s 99% loan-to-value (LTV) mortgage, or at least its product for those who have a £5,000 deposit, with a maximum loan amount of £500,000, hence the 99% LTV element.
There are, of course, other products out there in the market that tread a similar ground, but these are undoubtedly the two most high-profile, and have had the most cut-through.
A waiting game for first-time buyers
We now await to see how they might ‘land’, but these types of products are of course welcome for a group of potential first-time buyers who might have, up until now, looked at the deposit levels required, the affordability hurdle to be overcome – especially with higher rates – and wondered if they were simply years away from being able to meet the needs of most lenders on both.
However, as we move forward, is it possible to see this moment as a tipping point?
A recognition that a catch-all approach to maximum LTVs for first-time buyers need not be the only option on the table, and that instead we can have loans offered above 95% LTV where, of course, the borrower fits the affordability criteria.
Let’s be honest here, while there is clearly (and perhaps quite rightly) some nervousness around the notion of 100% LTV mortgages, there has to be an acceptance that, for many borrowers, getting to a 5% deposit level is hard, but it needn’t necessarily be a barrier to them getting on the housing ladder.
For example, when it comes to a deposit, is 2%, 3% or 4% that much different to 5%, especially if you have been renting for any length of time?
In fact, as many have pointed out over the years, large numbers of individuals are currently paying more in rent each month than they are likely to be paying in initial mortgage costs.
Now I know that owning a home comes with other costs as well, and these need to be accounted for, but should we be segregating a whole host of potential owner-occupiers out of the market, especially those who don’t have access to a Bank of Mum and Dad?
Filling a necessary post-95% LTV gap
The point about renting, and wanting to act now, is also particularly pertinent given the current rental situation and its likely future.
Research from The Resolution Foundation released recently suggests average rents may increase by 13% over the next three years.
The imbalance between rental supply and demand continues to be felt in that regard, and there will be a whole cohort of renters who understand this, who want to buy their first home in order to get out of this situation, but currently do not have a ‘normal’ deposit and, with rents as they are, will find it difficult to save this amount.
According to the English Housing Survey, housing deposits from family or friends have risen by 9% as a source for deposit in the last two years in England. Without access to that, we need a healthy post-95% LTV mortgage market to support those who can afford a home, and the mortgage payments, but don’t have that 5% deposit.
Again, I’m not suggesting a move to 100% LTV mortgages, but as Skipton and Yorkshire Building Society have shown, lenders should be able to marry up the worlds of higher LTVs and utilising rental payment history to provide first-time buyers with products that fulfil that need.
Lenders, of course, have access to the private mortgage insurance market to be able to mitigate the risk of offering such products, insuring ‘slivers’ of higher LTV thresholds against payment defaults and the like, ultimately securing peace of mind in offering these mortgages.
It does feel like a line is being drawn here, and I’m ever hopeful that advisers will have far more of these types of products to be able to offer first-time buyers. The demand is certainly there, and we need to get the message out as an industry that options exist.
They just need to contact an adviser to see how they can progress.
