Perhaps it’s because they are the lifeblood of the housing market that they are of such interest and why the absence of them is worrying.
To try and stop the rot, Housing Minister Grant Shapps last week pulled together several groups – lenders, the FSA and the CML – to discuss the options.
Unsurprisingly, no single solution or ‘magic bullet’ was unearthed. Rather, a combination of mortgage insurance, shared ownership and product innovation, were suggested. Those wanting something to happen quickly will be disappointed as the CML said it is likely to be a gradual process as confidence in funding markets and lending decisions is restored in a more stable market environment.
So what in the meantime?
There is more choice at higher LTVs. According to Moneyfacts, there are some 70% more 85% and 90% LTV mortgages than a year ago, but it remains difficult to get a loan at this level. It is not so much lack of choice as tough credit scoring that seems to be the issue.
I am not suggesting we give mortgages to just about anyone, but when good applicants are turned away, you have to wonder why.
On a positive note, innovation is filtering through, with more choice available, not just at 85% and 90%, but also 95% LTV. This will be too much for those who think first-time buyers should have bigger deposits, but many would never be able to buy in that ideal world.
A 95% LTV mortgage fixed for five years, giving guaranteed mortgage payments over a reasonable period of time, minimises the risk.
A 95% LTV deal fixed for two years, in a volatile housing market with the threat of rising interest rates looming, is a far riskier proposition.
House builders have been more innovative than most, which cynics would argue isn’t surprising as they have a lot of stock to shift.
Those buying from Taylor Wimpey can borrow up to 95% LTV via Melton Mowbray and Saffron building societies. Bovis has a tie-up with Woolwich whereby buyers can borrow up to 90% LTV, while the house builder provides the lender with mortgage indemnity guarantee. Meanwhile, Barratt has tied up with Hitachi Capital to offer parents a loan of up to £50,000 to cover their child’s deposit.
Elsewhere, if parents can help, there is Lloyds’ Lend a Hand, and a range of guarantor options, as well as specialist guarantor deals from National Counties Building Society and Bath Building Society.
So, there are a handful of options and the number is growing all the time. Innovation is welcome and desperately needed.
However, it remains the case that unless children have help from their parents, getting on the housing ladder remains a tough, if not impossible prospect. This is bad news for the market as a whole, not just those with thwarted home ownership dreams.
Melanie Bien is director at Private Finance
