His recent appearance before the Housing, Communities and Local Government Select Committee was noteworthy for any number of reasons with Mr Gove using the meeting to outline his views – and no doubt direction of travel – on a large number of issues, not least cladding, leaseholds, planning, housing supply, and mortgages.
Given he has been a part of a government which has clearly sought to provide support to first-time buyers in order to help them onto the ladder, it appears there may be some doubt in his mind about whether government action has been met in kind by lenders.
He called lenders “overcautious” in their lending policies to first-timers since the 2008 financial crash, suggesting the housing gap couldn’t simply be bridged by the building of new homes, with the assumption being here that lenders have effectively put the brakes on the ability of new owner-occupiers to get on the ladder.
Many within our sector will have some sympathy with that argument, not least because we have clear evidence to suggest that without the government’s most recent intervention – the guarantee to stimulate higher LTV mortgages – we may well be still looking at very slim product pickings for borrowers wanting 95 per cent LTV mortgages in particular.
I think there would be little pushback on the suggestion that lenders have been reluctant to fish in these high LTV waters without government support, although it is now somewhat ironic that, with that support available, many lenders are choosing not to use the government scheme and are instead using private alternatives or indeed not mitigating the risk at all.
Lenders themselves might argue they are curtailed by regulation in terms of their lending levels at higher loan-to-income (LTI) multiples, which tend to be more greatly required by first-timers or those seeking high LTV mortgages. Since October 2014 no more than 15 per cent of a lender’s mortgages can be high LTI, which is defined by the Financial Policy Committee (FPC) as being 4.5 times income or higher.
Gove might consider “further action” to improve first-time buyer lending
However, there are a couple of points to make here – just how close to 15 per cent have lenders got, and why post-March this year have they been so willing to offer higher LTV mortgages when prior to this, they seemed immune to calls to return these products to their ranges? Especially when many are not using the government guarantee designed to incentivise such product offerings?
At the moment first-time buyers wanting high LTV mortgages are catered for relatively well, although it is telling that 95 per cent LTV product numbers are still nowhere near where they were before the pandemic began.
In a very strong sense, Mr Gove is right to highlight this issue because the government’s own guarantee scheme is only due to last just over another year. If it is not renewed, will its passing result in a fall back of 95 per cent LTV options again, even from those who have not used it? If so, that will not be good for a government seemingly still focused on helping more young people into their first homes.
There’s no doubt lenders are still cautious, and it might also be possible that they are shielding behind the FPC rules in order to justify that caution. There has been talk of movement on that LTI measure for some time, which would be welcome – we are not in 2014 any more and, if we are serious about continuing to support first-timers, then lenders may well need to feel they won’t be sanctioned for increasing their lending appetite in this space.
Mr Gove may therefore feel it’s time for further action in a number of areas to improve lending to those new to the housing market.