The mortgage is currently limited to buyers in the South West of England and the building society emphasised it does not want to lead a return to the model of the boom years. But reformed or not, is it time 100% LTV mortgages made a comeback?
For this week’s Marketwatch, our commentators are:
Aldermore Residential Mortgages managing director Charles Haresnape, who argues the return of mortgage insurance could encourage high LTV lending
Genworth Mortgage Insurance Europe vice-president commercial Simon Crone, who says we all know what happened the last time 100% LTVs were readily available
Baby Whelk mortgage advisers director Stewart Davies, who recently handled a case involving a parent-assisted 100% LTV loan
Charles Haresnape, managing director, Aldermore Residential Mortgages
There is undoubtedly demand for mortgages requiring no or a low deposit. So why haven’t more lenders developed low or no deposit mortgage products?
Because large financial institutions have been distracted by other issues, such as rebuilding their balance sheets and trying to complete mis-selling compensation projects.
As a result, most large banks and building societies have adopted a cautious approach to lending, with low LTVs and tight lending criteria becoming the norm. And without any strong competition, small lenders have been happy to follow suit.
There has been a dearth of new product innovation in the market since the onset of the credit crunch.
However, there have been some exceptions such as Aldermore and the Bath Building Society, who have recognised that the market needs products and not just more cash.
I’m sure more lenders will eventually follow, perhaps encouraged by the prospect that MIG insurance will make a reappearance to help higher LTV lending. However, the MIG market needs to be able to give lenders the assurance that it will pay out in the event of claims, if it wants to be taken seriously once again.
What will it take to galvanise the higher LTV market back into action? The answer is a restoration of consumer confidence. Funding is now becoming more widely available, helped by schemes such as Funding for Lending.
What we now need to see is house buyers buying houses once again.
Simon Crone, vice-President commercial, Genworth Mortgage Insurance Europe
It is no secret that more needs to be done to help frustrated first-time buyers on to the property ladder.
The typical deposits currently required are ruling otherwise suitable candidates for home ownership out of contention and while government and industry initiatives have provided some relief and helped in part lead to the most encouraging first-time buyer figures in recent years, there is still a long way to go.
But while the return of high loan-to-value mortgages up to 95% – possibly supported by mortgage insurance – would certainly be welcomed by borrowers and brokers alike, it is important to differentiate between such products and those available at 100% of the property’s value.
We have never advocated such home loans as it is our belief that even a deposit of 5% shows a borrower’s commitment to the mortgage, not to mention the fact that we all know what happened the last time 100% LTVs and beyond were readily available.
100% LTV mortgages quite simply represent too much of a high risk to lenders. Other high LTV mortgages carry their own set of risks compared to lower LTV products, but the existence of some sort of deposit – or a mortgage insurance policy – help mitigate some of this risk for the lending institution and the borrowers themselves.
In short, high LTV lending needs a prudent framework to operate successfully and while the return of 90% and 95% LTV products is encouraging, those available at 100% should set alarm bells ringing.
Stewart Davies, director, Baby Whelk
Until lenders remember how to lend responsibly to all types of residential borrower it is hard to see things getting any better over the next 3 to 5 years.
First-time buyers unlock house buying chains. This increases demand for housing and in turn improves property values.
The prospect of new-to-market borrowers finding funds for fees and a deposit is however not good given the fact that disposable incomes are lower than ever and the prospect of saving is remote.
Initiatives requiring deposit of lump sums from relatives only go a short way to remedying this problem for the same reasons that the money just isn’t available from the lower to middle income groups.
I have recently placed a young couple with Aldermore Bank’s Family Guarantee Mortgage which sensibly uses parents’ equity, not cash, to manage the risk of lending at 100%.
This shows an understanding is in place of the difficulties involved in getting on the housing ladder. It enables parents to assist without committing their savings or borrowing again to gift a deposit.
We can but dream but if every lender had a meaningful 100% product for first-time buyers the market would receive a huge kick-start.
