Much like potential first-time buyers when weighing up whether they are going to be able to get on the property ladder, there are a number of things to be optimistic about but also taking a quick reality check could mean purchasing might not be as close as desired.
First, the good news. The latest Genworth/Moneyfacts Mortgage LTV Tracker paints a rather positive picture, especially compared to the dearth of low-deposit products that existed pre-Help to Buy.
In fact, in terms of 95% LTV mortgages there is much to be optimistic about – in January this year there were 182 products available, up from 141 in October last year, and 116 a year ago. That’s a 57% year-on-year increase and is certainly a reason to be cheerful; indeed, this is the largest number of products available since the start of the recession.
Why is this important? Well, it shows increased appetite to lend in this space which ultimately shows that there is greater confidence about lending to those with smaller deposits.
Clearly, Help to Buy has been absolutely crucial in this regard and it’s still the case that a third of those products – 60 to be exact – are Help to Buy 2 products, otherwise known as the mortgage guarantee scheme. However, this actually fell by one on October’s figures and we are therefore seeing a far more active market generated by those lenders not taking part in the government’s scheme.
Help to Buy 2 is due to finish at the end of 2016 and those 60 or so products – or whatever the number is by then – will ultimately go with it. However, if those operating outside the scheme, notably building societies, continue to see the value of Help to Buy lending and use private mortgage insurance, then we envisage a much more sustainable high LTV mortgage market for would-be borrowers.
This is absolutely crucial if we are going to get more people onto the housing ladder and, again rather crucially, if we are to up the number of new houses that are being built in the UK.
So, that’s the real positive to take from our latest tracker. Product numbers are on the up and, while Help to Buy 2 has been invaluable and has acted as a catalyst, we will hopefully start to see less reliance on it going forward.
Now for the less positive news. Alongside an increase in products and competition we have seen some price adjustment – now the best-buy rate for a 95% LTV mortgage is 3.79%, having dropped from 4.64% in October. And the average rate for all 95% LTV mortgages also decreased by 0.46% since the end of last year to 4.79% in January – down by 0.26% year-on-year.
As a result, the price gap between 75% and 95% LTV mortgages has narrowed to 2.78%, however, it still means that on a house worth £150,000, a borrower’s monthly repayments are 71% higher for those with just a 5% deposit compared to those able to stump up 25%.
This is a hugely significant differential; over two years the 95% LTV borrower would be paying £8,000 more than those on a 75% LTV product. These higher mortgage costs could mean the difference between securing a property and not.
We therefore need more competitive pricing in this sector across the board and we must ensure that capital relief is available to lenders using private insurance beyond the life of Help to Buy 2, not just within it. If we can secure this type of long-term solution then we are confident that the good news for the high LTV mortgage market and its borrowers will continue well into the future.