The reaction to the Chancellor’s ‘mini Budget’ was swift and somewhat brutal, resulting in many lenders pulling product ranges – particularly fixes – as they attempted to get a ‘price handle’ on what rates they could offer mortgages at, particularly in a future landscape that was now predicting rates to be far higher in 12 months’ time than anyone had cared to anticipate up until now.
It has been a swift learning curve for all of us, and one tinged with significant regret that this might have been so easily avoidable with some forethought and planning.
In that sense, and given the experience of the last few weeks, you might be thinking – with just cause – that we need less government intervention in our market rather than more, and I would ordinarily agree with you.
Government support for low deposit borrowers
However, these are not ordinary times and when it comes to the lot of certain borrower groups – specifically first-time buyers seeking high loan to value (LTV) mortgages. If things continue on their existing trajectory, then I suspect the calls will grow louder for government action, particularly when it comes to the 95 per cent LTV mortgage market.
We do already have government intervention in this space, with the Mortgage Guarantee Scheme. However, to say that the initial momentum this generated has been given up would be an understatement.
It may well need a reset, an extension or indeed a further and more substantial intervention to solve a problem of its own making.
Market-led weaning
Now, as someone who has been advocating fewer government-supported schemes in our mortgage market in the past few years, this does stick in the craw a little. Indeed, I still believe at some point our sector has to wean itself off government intervention and must provide our own schemes to first-time buyers who do not rely on taxpayer money.
We were slowly and surely beginning to do this, and the fact that the government’s mortgage Guarantee Scheme was – still is – due to finish at the end of 2022, was in turn acting as a catalyst for schemes such as Deposit Unlock, which we have played a considerable role in.
And indeed, while the Guarantee Scheme was a shot in the arm for the provision of 95 per cent LTV mortgage availability, the fact most lenders offering higher LTV products were not using it and were either working with private insurers like ourselves or taking the risk on their own balance sheet, told its own story about renewed appetite and confidence to support those potential first-timers with smaller deposits.
A different scenario
However, as Judy Garland famously put it, “We’re not in Kansas anymore.” The ‘mini Budget tornado’ has swept us into a very different environment – one in which we have already seen almost 70 per cent of all 95 per cent LTV products disappear from the market, and where those that remain have for the most part been repriced at significantly higher levels.
Add the fact that affordability criteria and stress testing has also shifted, and you can see that it’s become much more difficult for first-timers with low deposits to not just secure the loan levels they need, but to secure a mortgage full-stop.
And, lest we forget, that the Chancellor also announced a stamp duty cut designed to encourage more people into home ownership. That has been forgotten, surpassed and wiped out in the space of just a few days by the increased cost of home borrowing.
Fixing the issue
So, where does that leave us? Yes, we do currently have more product availability in the 95 per cent LTV space than we had a couple of years ago, but even as rates have calmed a little, there are no guarantees that lenders will return quickly, or even at all.
The government has therefore effectively turned the clock back on the sector; perhaps you might even argue it has made things even worse.
In that sense, it needs to rethink its actions, rethink its current scheme interventions, and potentially rethink whether this sector of our market requires a further boost to ensure those low-deposit first-time buyers continue to have the mortgage options they need.
