Tackling the issue in this week’s Market Watch are:
Alan Lakey, principal at Highclere Financial Services
David Sheppard, managing director of Perception Finance
David Hollingworth, head of communications at London & Country
Helen Adams, managing editor of FirstRungNow.com
Alan Lakey, principal at Highclere Financial Services
Without exception, every one of my first-time buyer clients expresses shock at the relatively high interest rates and the paucity of products at the 90%-plus end of the market.
The problem is not simply one of borrower affordability, because most lenders will now assess affordability based on the monthly outlay.
This means borrowers are hit twice – once with higher than expected rates and then by the lender restricting their borrowing due to this imposed higher cost.
Whilst lenders threaten to enter the higher LTV sector, these are somewhat empty promises because two-year fixed rates at 6% and above are overly extreme and express either an excessively cautious risk assessment or an appetite for usury.
Lenders are also restricting such 95% loans to the non-adviser market. Again, is this sensible vigilance or a cynical attempt to corner this sector of the market and practise their favoured cross-selling techniques?
At the time of writing Nationwide operates ten 95% LTV products, which are only accessible via the branch. There are ten adviser offerings, but these are restricted to existing borrowers.
Lloyds TSB, and the Derbyshire, Dunfermline and Yorkshire Building Societies also practice this segregation.
The market will not begin to recover in anything other than a sporadic manner whilst this lending apartheid continues.
David Sheppard, managing director of Perception Finance
It is good to see that an appetite is returning for those with smaller deposits, although I do question whether it ever went away. The higher capital requirements were always going to keep lenders away at these levels and, for some, it still does.
There will be those that look at these latest rates and question whether they will encourage first-time buyers to buy property, as there is still a misunderstanding about rates offered for mortgages and the base rate.
The fact is though, that when looked at historically, these rates are good and are properly priced, not just for risk, but also to be profitable.
That said, having a few more lenders wanting to take a slice of this market will help. This will not only maintain the service levels for those already there but also keep the pricing competitive. There is no doubt in my mind that 90% rates will fall a bit over the coming year if greater competition comes about.
As with all interest rates, the devil is in the detail, so all new products will need to be checked to ensure they offer a good option for those looking to get on the ladder. A 95% rate with a higher lending charge that cannot be added to the loan would have little appeal.
I would expect that product teams for all lenders are looking at how they can launch a product range that helps this group, with specific attention given to those that have a banking relationship with the lender already.
This way they already will have an understanding of the profile of the client and will be better able to risk assess them with credible internal data.
David Hollingworth, head of communications at London & Country
There have certainly been some encouraging recent launches at higher LTVs. They have varied in their approach, but all are generally limited in their availability.
For example, the products in conjunction with developers, such as Taylor Wimpey, have tended to be available on specific sites in conjunction with local lenders, using an indemnity policy alongside.
The move by Northern Rock to launch 90% rates was certainly of note and it is great to see a lender of that size showing more commitment to the first-time buyer market.
Similar can be said of Skipton’s development of a 95% mortgage, especially as it has already been so successful in bring a 90% range to market.
Both ranges have initially been launched with a limited distribution, although this is only to be expected as lenders push out their criteria.
However, I think that we need to keep things in perspective as the market remains extremely tight at that end of the market.
The launch of a new product here and there will clearly not rejuvenate the first-time buyer market overnight. Rates will remain higher than for those with larger deposits and borrowers will have to meet tougher credit scoring requirements.
Any innovation in this market is likely to remain focused on parental help, whether that is in providing a bigger deposit, a guarantee or some additional security.
However, with every new product comes a little more choice and slightly more competition and could open the door to another lender to start lending again at higher LTV.
It may be a case of small steps, but each one is a step in the right direction.
Helen Adams, managing editor of FirstRungNow.com
First-time home buyers have been left out in the cold for far too long. With property prices so high, mortgages hard to come by and deposits difficult to amass, unless you have generous parents or grandparents, they need help.
The whole property market and those companies that depend on it need kick starting and first-time buyers are integral to it. Property prices remain high but could dip and therein lies the risk for lenders.
However, lenders have done very well out of first-time buyers in the past and the time has come to pay back the favour. The government has done its part by scrapping stamp duty for first-timers and now it’s time for the lenders to step to the plate.
Whilst there is clearly a risk in high LTV mortgages, there can be returns from either other first timers or from those borrowers further up the chain which can help offset these risks.
If it’s too risky to lend over 95%, then there should be more available in cashbacks, paid fees and lower application fees, even if they are clawed back over the term of the mortgage.
What the borrower needs is lower entry costs and security in exchange for the not inconsiderable revenue they and their part in the chain bring the lenders.
Other welcome innovations would be simpler, less costly shared ownership mortgages and, of course, the acknowledgement that whole of market brokers and advisors can offer a more transparent service to novice borrowers.
The first lender to respect the intermediaries’ part in the market as the way to open it up will be a brave but popular one.
