The high Loan to Value (LTV) market appears to be buoyant at the moment, with new data from Defaqto released this week revealing that the rates charged on 95 per cent deals have dropped to record lows.
A year ago the average rate on two-year fixed rate high LTV deals came to 3.98 per cent, but it has since dropped to 3.46 per cent, while falls have also taken place on fixed deals over other terms.
There has also been an increase in both the number of lenders offering these deals, and the number of high LTV products to choose from.
These small deposit borrowers have also been pinpointed as the driver behind the jump in mortgage approvals by e.surv, accounting for 27 per cent of approvals in January, up from 25 per cent in December.
Richard Sexton, director at the firm, suggested first-time buyers were becoming “the new battleground” for lenders.
Filling the buy-to-let hole
Mark Dyason, founder of Edinburgh Mortgage Advice, said that he was delighted by the current state of the high LTV market, noting that there is currently far more flexibility on underwriting, meaning fewer ‘computer says no’ rejections.
Dyason pointed to the likes of Aldermore and building societies as being particularly good at providing that flexibility.
“All in all we feel this helps support the first-time buyers who are now filling the hole created by a drop in buy-to-let demand, or even buying the former buy-to-let properties now being marketed,” he added.
Working up the risk curve
Andrew Montlake, director at Coreco, (picturedsaid that it appeared that the first-time buyer sector had been “staging a comeback” over the past couple of months, noting that the combination of low interest rates and the greater availability of property due to buy-to-let changes had enticed buyers who had previously put their search on hold.
He added that competition among lenders had been so intense that they had worked up the risk curve to “where they can charge slightly higher rates and follow where the buyers are”.
“There has also been a welcome dose of innovation in this space, with lenders such as Barclays, Halifax and Bank of Ireland taking advantage of the ‘bank of mum and dad’ who want to hold on to their savings rather than simply give them to their kids.
“Family guarantee mortgages have been developed that fill a much needed gap and allow a borrower access to better rates and higher LTVs,” he concluded.
Time for more innovation
Dilpreet Bhagrath, mortgage expert at Trussle, noted that Virgin Money, Barclays, Halifax and Skipton all had competitive deals at 95 per cent LTV, with Skipton also offering cashback on one of its deals.
She suggested that lenders should expand their risk assessment criteria to include things like rental payment history so that more borrowers could take advantage of these deals and get onto the property ladder.
“We’d like to see greater product innovation take place, such as flexibility in over payments which will help those with smaller deposits gradually build more equity in their property, especially as these customers are at greater risk of negative equity,” she added.
Shaun Church, director at Private Finance, argued that there was room for innovation on income multiples.
He said: “We’ve already seen lenders such as Clydesdale increase their lending criteria to 5.5x income for newly qualified professionals, which will hugely benefit prospective buyers with smaller deposits. The more lenders are able to relax their lending criteria for suitable borrowers, the more first-time-buyers will benefit.”