The market needs a healthy first-time buyer market, but lenders are under pressure to demonstrate to the City that they are delivering low LTV lending.
As a result, there appears to be almost a price war as rates on some mortgages tumble, with different lenders vying to undercut one another.
However, look more closely and this “price war” focuses only on low LTVs, usually sub-70%.
This still leaves first-time buyers and those with less equity or slightly more complex circumstances struggling to get a mortgage.
While there have been a number of higher LTV mortgages launched, these are usually significantly more expensive or require such stringent checks that many borrowers do not qualify for them.
While swap rates are enabling lower pricing, lenders appear to have a low appetite for risk. With the additional capital requirements they have to meet, it means first-time buyers are sometimes charged 50% more interest if they have a 10% deposit compared to those already established on the housing ladder who may have a 30% deposit.
We are left with a situation where a potential borrower visits his or her mortgage adviser having seen some good headline rates only to be told that they do not qualify for that rate.
Instead, they need to pay up to 50% more – if, and only if, they then also pass the lender’s more stringent credit checks.
Driving credit-worthy potential buyers out of the market by a double whammy of higher rates and tougher affordability criteria will increase the risk of instability in the whole market.
I don’t blame individual lenders for focusing on low LTV lending; they are only responding to the demands of financial markets and regulators.
In the recent round of interim results, many banks were keen to let everyone know how low their average LTV was on new lending, as this is deemed to be a sign of book quality.
But risk is only crystallised into losses when house prices fall and the current set of regulatory and capital requirements are increasing the risk of this happening.
They are damaging the market at a time when it is particularly fragile.
Are all first-time buyers and those with less equity really that much more risky that they need to be charged 50% more or is it time for the model to be reviewed again?
Jon Round is chief executive of First Complete
