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Lenders must get creative with high LTVs to truly help FTBs – Bamford

by: Patrick Bamford, head of international business development at Qualis Credit Risk, part of AmTrust International
  • 12/07/2023
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Lenders must get creative with high LTVs to truly help FTBs – Bamford
With all the issues and obstacles facing would-be homeowners right now – rate rises, product choice, supply of homes – there is still one major barrier that continues to grow in size, and that is the size of deposit required and the time it takes the average first-timer to save up for it.

Recent figures from Generation Rent suggest that the average time it takes to save a deposit for a property has risen from 6.8 years back in 2012, to 9.6 years now. No doubt due to a combination of factors including rising house values, incomes not rising at the same rate, the increase in the cost of renting and other additions to the monthly outgoings including the big increases in the cost of living we have seen in recent years. 

Saving will obviously take a back seat when all your money is required for the here and now, and I wonder just how savings have been impacted, particularly over the last year to 18 months? 


Do away with traditions 

Clearly, close to a decade is a huge amount of time, and given the fall in the supply of homes in the private rental sector, we have to consider that this timescale may grow if demand for renting increases, housing supply continues to fall, and therefore the cost of monthly rents stays on an upward trajectory. Notwithstanding inflation and the Bank of England’s ability to get this number down.  

Given that length of time to save a deposit, it is no wonder that the influence, and importance, of the Bank of Mum and Dad has grown and grown over the past five to 10 years. How else might wannabe first-timers get on the ladder without parental support, either via the gifting of deposits, acting as guarantors, or indeed both? 

However, we can’t be a society whereby only those with rich enough parents or grandparents can buy a home, and therefore we have to look at the ways and means by which those who might only be able to save a small deposit can secure a mortgage or home. 

To my mind that means a concerted effort on the part of all mortgage market stakeholders to look again at the provision of high loan to value (LTV) mortgages, and it means casting aside some of the traditional notions of what is deemed to be a minimum deposit level. 


Options for small deposit buyers

Unfortunately, when it comes to high LTV product provision, the sector has often been reliant on government intervention – and you might well argue still is to some extent – but we need to cut loose from this, and review what is available, what is required and actually marry those two things up. 

Hence, why there was such a lot of noise made recently about the Skipton’s ‘100 per cent LTV’ mortgage product which focused on rental payments, rather than deposit levels. No one is suggesting this should be a mainstream option however, which means we do need to look at what could constitute this. 

I’m a great believer in ‘skin in the game’ in terms of what mortgage borrowers bring to the home-owning ‘party’, but that doesn’t necessarily mean it has to be a five per cent deposit. There are no barriers to lenders offering mortgage products to first-timers who have a four, three or two deposit, utilising risk mitigants such as private mortgage insurance, and ensuring there is an extra layer of protection added to the mortgage. 

That is a genuine option right now, and it might well enable a large degree of potential purchasers who feel it is five, 10 or 25 per cent deposits or nothing, to look again at what they are capable of saving, and how that might get them into the property they want in a far shorter timescale.  

There are obviously other things at play here which will impact on an individual’s ability to save. However what we should certainly be doing as a mortgage industry is providing far greater low-deposit options in order to provide access to those who can save these smaller amounts.  

It would also highlight the opportunity to own for those who can’t go cap in hand to their parents – we are after all meant to be a home-owning democracy. 

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