Growth is being fuelled by the government guarantee scheme but increasingly it is being pushed forward by those not using the scheme, or using private mortgage insurance instead to mitigate against the perceived higher risk.
The most recent – and perhaps heavyweight – entry back into 95 per cent LTV mortgages is Nationwide who have clearly been keeping their powder dry and weighing up how to make a significant splash.
In that regard, it was interesting to read Henry Jordan, director of Mortgages at Nationwide, talking about the “improved value” that Nationwide could offer to borrowers by choosing not to be part of the government’s guarantee scheme when offering these mortgages.
For “improved value” you might well read “it will cost us less than those lenders taking part and we’ll be able put those savings into the rates we offer”.
The factors to consider
There are a number of issues with the government’s guarantee offer – it is a one size fits all offering and not flexible at all being one of them – but perhaps the least alluring aspect of it will be the cost and, by its nature, the impact it will have on margin and the need to recoup that via the pricing and the fee structure.
Hence, we’ve seen those using the scheme tending to price around the four per cent mark for their 95 per cent LTV mortgages, and those who are also using their balance sheet to fund their products tending to congregate not too far away from the same level.
Given its size and balance sheet scale, Nationwide are clearly able to target its pricing at the more competitive end of the scale, and this is likely to act as a catalyst for others to potentially rethink their pricing.
Albeit, with the caveat that every single lender active at this LTV level will only have a specific amount of funding available, and they may well think they can secure the levels of business required with this existing pricing, given the growing demand for these products.
Where other smaller lenders might be able to gain a competitive advantage or two, is around criteria obviously, but also for those who might want the security of an insurance mitigant but are not willing to countenance the constrictions of the government offer.
The insurance play
We’ve been talking to both existing and potential lender clients about how they can use a private mortgage insurance alternative to give both peace of mind and keep pricing competitive, and advisers should be seeing a growing number of lenders in that category coming to market with their 95 per cent LTV options.
The overall sentiment though has to be positive here – from a standing start there are now over 100 products in this space, and by the time you read this, that number will have risen again.
In a way the government has done its job already – it’s a shame that taxpayer money has had to be used to kick-start this highly important part of the market when, given the number of lenders who have come to the market outside the scheme, it was seemingly possible to lend at this level without the intervention.
However, better to be here now than not at all. Let’s hope this is just the start of a return to even strong product numbers across the board, backed up by excellent lender appetite to keep this going far in advance of any state support.