Lending statistics from the Bank of England and FCA show a rise in total lending in quarter two this year, seemingly fuelled by greater levels of higher loan-to-value (LTV) and loan-to-income (LTI) loans. These are traditionally the preserve of the first-time buyer.
Indeed, this type of lending rose to over a fifth of all business, with high LTV lending increasing quarter-on-quarter from 43.9% to 45.1%, while the number of loans above 90% LTV also ticked up.
Overall, it appears first-timers are in a stronger position than they have been for some time.
This conclusion has also been borne out by AmTrust’s own quarterly LTV Tracker which looks at the cost of higher LTV loans for first-timers and also reviews the number of product options available to them.
Strong competition helping
The good news is that strong competition in the mortgage market is finally impacting on the cost of high (95%) LTV loans, with the average rate coming down by a significant 35 basis points.
This means the rate/cost differential between those who can only secure a 5% deposit and those who can put down 25%, has noticeably narrowed.
Whereas previously those in the high LTV bracket could expect to pay 66% more than their lower LTV counterparts, that has now dropped down to just over 50%.
That is certainly a big gap, and one that could clearly make all the difference in terms of mortgage affordability and securing the home, but it is at least going in the right direction.
Product numbers too are benefiting from more lenders being active and competitive in the high LTV space.
For the three scenarios we test product numbers went up across the board. In some circumstances depending on term and type, the numbers reached three figures for the first time.
Again, when compared to the thousands of products available to lower LTV borrowers it does not seem like much progress has been made, but given in previous iterations of the Tracker the products on offer barely made it into double digits, you can see how far the market has come.
Best chance in a decade
Overall, it’s still the case that first-timers with small deposits can consider themselves behind the eight ball.
Let’s not forget that offering a product does not necessarily translate into lending activity and many of these lenders will only have limited tranches of funding available to a borrower demographic they consider to be higher risk.
But, if the client can put together 5% deposit and meet the affordability criteria, then it seems like they have a much better chance of securing a property than at any time over the past decade.
Extending the Help to Buy Scheme to 2023 will also help, as will more challengers and specialists eyeing up the first-time buyer market and more traditional lenders willing to offer higher LTV loans. More can always be done but it’s fair to say that, given recent history, it’s a positive to be moving in the right direction – long may this continue.
