Headlines in the mainstream media shouting about a mortgage price war may be music to the ears of some borrowers, however, there is also a danger that they offer false hope and expectation to those borrowers who do not fit the lower-risk, 60% loan-to-value (LTV) deals that many of the lowest priced products are targeted at.
Advisers will no doubt have received numerous calls and emails in recent weeks from borrowers looking to get their hands on, for example, Atom Bank’s five-year fixed rate (pulled after nine days) or Yorkshire Building Society’s lowest ever mortgage rate at 0.89% or HSBC’s lowest ever five-year fix.
Now, as we know, there will be a small number who fit the criteria and are able to claim the rate, however what advisers are most likely to be confronted with is a disappointed client who, for whatever reason, will not be one of the lucky ones.
This isn’t to say that a highly-competitive mortgage can’t be found for them or that they can’t save money – after all that’s what mortgage advisers do – but one suspects they will still be wondering why they can’t get these ultra-competitive deals that are touted in the media.
For those borrowers who have small levels of deposit/equity, the disappointment may be more acute because when compared to the rates seemingly on offer for those with 25%-40% deposit/equity, there is little comparison. And that’s if they can secure any sort of mortgage in the first place.
We conducted research recently into the market facing borrowers with 5% to put down and the pricing differentials between this group, and those who have 25% is quite startling.
According to Bank of England figures, the average product rate for a 95% LTV mortgage is 4%, compared to 1.37% for 75% LTV loans – indeed, as the price war has developed, the average rate is dropping for the latter group and actually going up for those in the former.
It’s therefore clear to see where lenders’ priorities lie at present and unfortunately given that first-timers tend to be the borrower demographic more likely to require a small-deposit mortgage, it is they who are paying significantly more for their products. Again, our research shows that while a 75% LTV mortgage holder, putting down an average deposit on an average first-time buyer home would pay £466 per month, the 95% LTV borrower would pay £790. That’s almost 70% higher.
Added to this is the situation low-deposit first-timers find themselves in actually finding 95% LTV loans in the first place. Rather than look at the total number of 95% LTV products available in the marketplace, we looked at the ‘real’ availability – reviewing a mortgage search engine’s results as an average first-timer, looking at an averagely priced first-timer property and having 5% to put down.
For those wanting a two-year product of any type, there was one product available; while for those looking at any term/any type, six products came up as available.
Now, while we understand that advisers may have a broader range to review, the mortgage search engine did cover both adviser and direct-only deals and prospective borrowers do tend to look at these engines when initially reviewing their options. It would clearly have been disheartening to the average first-time buyer to find such slim product pickings at the 95% LTV level.
So, while advisers might welcome the increase in communication they receive via such headline-making offers, it’s important that we continue to highlight those borrower groups who are not so blessed.
Understanding, in particular, the importance of first-time buyers in our market and developing a product offering which caters for them and is also competitively priced is surely a must, and must not be overlooked. The price war is currently fixated on areas of the market which don’t really require it; now is the time to focus it on those areas that do.