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Do not expect high LTV mortgage lending to keep expanding – Bamford

by: Pad Bamford, business development director at AmTrust Mortgage & Credit
  • 01/04/2019
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Do not expect high LTV mortgage lending to keep expanding – Bamford
For all the talk about a subdued mortgage market, the latest figures from the Bank of England and Financial Conduct Authority for the last quarter of 2018 show a not insignificant increase in overall residential mortgage lending.


Among that data, however, was an interesting nugget about the increase in high loan to value (LTV) mortgage lending (above 90 per cent LTV) which stood at 4.4 per cent of all lending in quarter four 2018, compared to 3.8 per cent a year earlier.

That perhaps gives indicates how the lending community might look to address lending activity falls in other product areas.

But it also seems to show that lenders are now more willing than they have been over the last decade to look at the needs of borrowers – particularly first-timers – and address the biggest obstacle most will face, either the deposit or securing enough equity to get a lower LTV deal.


Modern-day niche opening

For the most part, the demand for high LTV loans has never really wavered.

While it’s good news that borrowers have more options in this product space, this change has only really gathered momentum over the past 12 months.

Part of this is also a competition question being answered by lenders who are simply not in a position to challenge the top six lenders’ hegemony, particularly for mainstream borrowers looking to secure 50-70 per cent LTV loans.

If you fit this brief, then the rates are eye-wateringly low and few other lenders outside the top strata can compete with the lower costs of funding.

Therefore, where else do you go for your business? Especially if you are, for example, a building society or other lender that can’t simply race to the margins of risk, and open-up to those with adverse credit?

Instead, what we have seen is a move to a modern-day niche of first-time buyer and high LTV lending.

However, for many lenders this has also been accompanied by the need to involve the parents of the borrowers in some capacity, be they as guarantors or by having them putting their money on the table.


Do not expect further growth

The more specialist nature of this type of lending has to some extent been seized upon by building societies, who can use private mortgage insurance to make their play in this sector but to also ensure they are covered should the worst happen.

I suspect the bulk of the increase in higher LTV lending might well be coming from these traditional lending sources looking for opportunities in an area which might be described as ‘non-mainstream’ – even if it is from the lifeblood of the market.

All in all, it’s a positive but I’m not certain that, in a year which is so unpredictable, I’d be jumping to a conclusion that suggests the supply of higher LTV lending can only continue going upwards.

That would, of course, be my preference because I feel there is a strong demand for such products and there are tools available that can mitigate the risk and deliver competitive pricing for those who should be able to access the finance they need.


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