Defining high-LTV mortgage lending in today’s market – Bamford

While Nationwide’s latest figures show affordability for first-time buyers has improved, with house price to income ratios easing and mortgage rates falling back from their peaks, the same research makes clear that saving for a deposit remains the dominant barrier to homeownership, especially in higher-priced regions.

Nationwide estimates that a first-time buyer in London would still require around nine years to save for a deposit, compared with roughly four years for someone buying in the North, and that gap alone highlights why deposit size matters far more than relatively modest changes in borrowing costs for many aspiring buyers.

When ‘high LTV’ does not feel high

One of the more striking aspects of the Nationwide analysis is its definition of high-LTV lending as mortgages with a deposit of 15% or less, a classification that feels slightly detached from the reality facing most first-time buyers.

Using Nationwide’s latest average house price data, which see homes valued at just around £270,000, a 15% deposit equates to around £40,000, a sum that is simply beyond reach for a large proportion of would-be homeowners, particularly those renting in expensive areas where saving is already constrained, or those who don’t have access to parental support, or have sizeable student debt – or, indeed, all of the above.

Even a 10% deposit, which would still fall under this broad ‘high-LTV’ label, comes in at £27,000 before any additional costs are considered, including legal fees, surveys, moving expenses and stamp duty, all of which push the upfront cash requirement even higher.

5% is not easy money

For many first-time buyers, particularly those paying high rents and dealing with elevated day-to-day living costs, building even a 5% deposit or level of savings can take many years, despite recent improvements in wage growth.

The idea that large numbers of buyers can simply access 10-15% deposits is fanciful and overlooks the financial reality facing many individuals, where disposable income remains limited, and saving is a slow process.

Student debt cannot be ignored

This challenge is compounded by the level of student loan debt carried by many potential buyers, with graduates often leaving higher education with balances that run into many tens of thousands of pounds, reducing their net income for much of their working lives.

Although student loans are not assessed in the same way as traditional credit, they still affect monthly take-home pay and, therefore, the ability to save. This makes the prospect of accumulating any sort of large deposit – and yes, I believe a 10-15% deposit to be large – feel increasingly unrealistic for a growing section of the market.

Why the deposit remains the real barrier

This is why the availability of lending at 95% LTV, and possibly beyond, continues to play such a critical role, even in a market where headline affordability measures appear to be improving.

Lower rates and better income multiples may help borrowers service a loan, but they do little to address the fundamental issue of how long it takes to raise a deposit, particularly when house prices remain high in absolute terms.

Nationwide’s figures underline this point clearly, as even with improved affordability conditions, the time required to save for a deposit remains lengthy for many first-time buyers, suggesting that getting into a position to buy, rather than affordability, is still the core problem.

A challenge for lenders and the FCA

The Financial Conduct Authority (FCA) has been clear in its recent stated ambition to explore ways in which it can support greater access to homeownership, but achieving this in practice will require lenders to maintain and expand their commitment to high-LTV products, particularly at 95% and above, rather than treating these offerings as niche or temporary.

This does not imply a return to weaker underwriting standards, but instead a focus on sustainable, well-priced lending – potentially supported by use of private mortgage insurance – that reflects how people actually save, spend and progress through their early careers.

If the industry continues to group 15% deposits under the banner of ‘high LTV’, it risks designing solutions for a minority of buyers, while the majority continue to struggle with the same entry barrier.

A more realistic approach would recognise that for many first-time buyers, 5% deposits are already a stretch, and anything beyond that simply extends the wait, delaying ownership despite clear evidence that monthly repayments are often affordable well before a large deposit can be saved.