As I write, we are more than halfway through August and there is also an air of other worldliness about our sector, particularly given we are deep into holiday season which clearly impacts on activity levels from both a consumer and a lender perspective.
The fact is that no one is quite certain how the rest of the year is likely to play out, but clearly when the Bank of England is raising its base rate repeatedly and talking about an inevitable recession which may last all of 2023, there is much to ponder.
Add in the big factor at play, inflation, in particular the level to which energy bills will rise, and it’s undoubtedly an uncertain picture.
For potential first-time buyers, this situation presents a challenge. House prices have risen significantly over the past two years, meaning so have deposit levels; now with mortgage rates and the cost of living rising, it means that passing affordability measures to get a loan has not become any easier.
Mortgage guarantee success
In other words, getting on the ladder is harder and going to cost more. However, it will be harder still if the level of high loan to value (LTV) mortgages available falls – most notably the 95 per cent LTV products which were resurrected by the introduction of the government’s Mortgage Guarantee Scheme last year.
A lot is written about the scheme with some seemingly being convinced that it has been an overwhelming failure. However, recent statistics tend to dispel that notion and when you add in what it actually delivered for the high LTV space, you begin to get an idea of how game-changing it was, and continues to be.
Recent statistics from the government show that in the first quarter of this year, 17,966 such 95 per cent LTV mortgages were completed through the scheme, a sizeable increase on the 12,388 in the final quarter of 2021. Overwhelmingly, it was first-time buyers who benefited most, with 85 per cent of all total completions being for this demographic, although the fact that 15 per cent were for existing homeowners also shows how important high LTV mortgage provision is right across the board.
And if there was any doubt that this is a scheme helping those at the more-affordable end of housing, then the statistic that the average mean value of a property purchased or remortgaged via the scheme was only just above £190,000 should put paid to that notion.
Lest we forget that the ‘average’ UK house price is almost £100,000 higher than that.
Bringing confidence to high LTV lending
So, overall, you can see how the scheme has benefited a significant number of high LTV-needing borrowers.
However, as mentioned, that probably isn’t its greatest achievement because what you really need to add to the mix is the catalyst it provided for other lenders to enter the sector and begin offering 95 per cent LTV mortgages.
The majority of lenders in the 95 per cent LTV space right now are not working within the scheme’s parameters. They are either using private mortgage insurance provisions through insurers like ourselves or managing the risk off their own balance sheet.
Add all of that activity to the scheme’s completions and you’ll be able to assess the true value of what it has brought to the market.
Don’t get too comfortable
The point now is not to rest on these laurels. We know that the scheme will end when 2022 finishes and Help to Buy will follow soon after. In the past few months, 95 per cent LTV mortgage product availability has slipped – although whether this is more to do with service issues rather than appetite remains to be seen.
The market should, however, be clear.
There is continued demand and need for high LTV mortgages and, given the economic environment, that is not just a need and demand from first-time buyers but from all kinds of borrowers.
Lenders currently active within the government’s scheme have options outside it, perhaps more flexible, less costly ones than they are currently securing. Hopefully they will see the business advantages to be had in continuing in this lending space.
We are just four and a half months away from the end of the year, and if we can maintain product numbers and activity in the 95 per cent LTV space until then, I fully anticipate we will be able to move into 2023 – and beyond the government guarantee scheme – with a marketplace which can continue to provide finance to the many borrowers who will continue to need it.
