Now, I’m pre-empting the recently announced review by a good few months, but when it does report back, I’m quite certain there will be nothing in it to fear, and we can hope it does have several suggestions to right some of the wrongs that appear inherent in our market, but need not be.
The Prime Minister, Boris Johnson, talked a lot about the housing and mortgage markets in his June speech, but what came clearly through is that this government is not backing away from the ‘first-time buyer first’ policy it, and previous governments have followed for over a decade.
You might consider ‘turning Generation Rent into Generation Buy’ a political soundbite but again, no one looking at what has happened over that timescale will think this hasn’t been the attempted focus already. Whether it has achieved success in this area is, as always, a moot point.
Improving high LTV access
But, clearly, one of the issues the government does want this mortgage market review to look at is around ongoing obstacles to home ownership for potential first-timers, and what can be done to ensure deposit levels are achieved and access to 95 per cent loan to value (LTV) mortgages.
As a business which has spent the past 25 years working at the sharp end of helping deliver high LTV lending through our lender clients, we are clearly going to be ready, willing and able to share our thoughts with the review on how the sector works, the risks associated with this type of lending, how to mitigate it, and what might work going forward.
Cushioning of insurance-led schemes
It was interesting in the Q&A session after Johnson’s speech, that one journalist brought up the use of mortgage insurance, citing the ‘Canadian model’. They asked whether the UK might look to implement this in order to get greater numbers of high LTV products, increased high LTV lending, and more lender engagement.
Johnson himself batted this off but it will be clear to those conducting the review that in many countries, including the UK, private mortgage insurance for high LTV loans is a natural part of the marketplace. It helps ensure those who require such loans have access to them, that lenders who offer them can mitigate the risk, and as a part of this, the pricing for such products is not completely out of kilter with what is offered at other LTV levels.
Indeed, there will be many within government and HM Treasury who are acutely aware of what such insurance guarantees can deliver, especially given it was a specific Help to Buy scheme for a while and the government’s Mortgage Guarantee scheme, which acted as an excellent catalyst for high LTV product growth when it was introduced early last year.
The point should however be made that the Guarantee Scheme will finish at the end of the year, that element of Help to Buy referred to above finished in 2016, and while we have excellent schemes like Deposit Unlock kicking into gear with more lenders on board, there is always going to be a space for alternatives. Or indeed, more of a government push to get more lenders utilising private mortgage insurance to offer these higher LTV loans.
Figuring it out
It is a somewhat odd space to currently be in, but I suspect there will be few mortgage market stakeholders who can’t identify exactly what the barriers to buying are for first-time buyers. They have been the same for some time, but certainly greater levels of high LTV mortgage lending, greater numbers of products, coupled with support to allow would-be borrowers to make the most of their savings, will help.
Add in greater levels of housing supply, specifically affordable homes and new-build homes – the latter of which are very popular with first-timers – and you move forward again. Drop in slight shifts in lender affordability, the removal of stress-testing, tweaks to criteria, and a greater willingness to see regular rental payments as indicative of a greater propensity to pay a mortgage, and we may open things up even further.
Any review of the obstacles tends to write itself – it will be putting in place the industry solutions that are readily available, which may take longer to get agreement on.