Halifax, Santander, NatWest and Barclays have all kept their distance from the 90 and 95 per cent LTV lending market, while Nationwide continues to offer its highest LTVs through the branch network only, leaving brokers with few options to offer clients with small deposits.
In the latest Mortgage Solutions poll, almost half of brokers who voted said the only high LTV options for their clients were through product transfers. A further 45 per cent said the low deposit market was tricky but there remained some deals available.
The lack of product choice, and almost daily updates of small and medium sized lenders moving in and out of the low deposit market, has sparked debate over whether the big banks are right to hang back. Is it unrealistic to expect banks to flock back to high LTV lending?
Brokers have raised the question that if mortgages are underwritten based on affordability and not equity levels, a house price dip will not affect the bank because the borrower can comfortably afford to pay their loan. And those taking a five-year deal will have to worry even less about a short term drop in values.
Some banks, however, have said they are concerned about what will happen to the economy and unemployment levels when furlough schemes and mortgage payment holidays come to an end. Some businesses may not survive in the long term, leaving people jobless.
NatWest, for example, is monitoring market conditions which includes employment levels and the return of physical valuations in Wales, Scotland and Northern Ireland. Only when it has a clearer picture of the UK economy and these parts of a normal functioning housing market return, will the bank look to increase its LTVs.
On top of that, lenders are struggling with practical issues.
Nick Morrey, product technical director, John Charcol, said: “Lenders have a shortage of staff, including underwriters. Some are on furlough while other banks were not set up for homeworking. On top of that they are working through valuation backlogs and have to listen to their economists spouting a lot of doom and gloom which may or may not transpire.
“If you are working in a bank desperate to bring back high LTV products and you have a department forecasting a large dip in house prices you will be under significant pressure to hold back in case they are right.”
But the “doom and gloom” merchants, says Morrey, could end up causing the problem they are warning banks to avoid.
Industry commentators and economists that work for the banks have issued some dire warnings of house prices falls later this year. If bank’s listen to their economists and stay away from the 90 and 95 per cent LTV lending, freezing out first time buyers, it could have a negative impact on the housing market.
“First time buyers push the market up from the bottom,” said Morrey. “This could become a self-fulfilling prophecy, when it is the lenders own economists inside saying property prices could take a hit so don’t bring out these products. In which case they will be part of the cause and not the solution.”
HSBC is the only one of the big six banks still supporting the intermediary market with 90 per cent LTV deals but with a strict daily lending cap, it is only the early bird brokers that manage to book the funds. Mortgage Solutions asked Halifax, Santander, NatWest and Barclays if they would consider a similar system to support those few lenders carrying the burden but they would not address the question. They would only comment that they would continue to review their ranges. Barclays declined to comment.
Lenders like Accord and Virgin Money recently had to withdraw from 90 per cent lending because they became overwhelmed with demand. A problem that would not occur if they had the support of the biggest lenders, say brokers.
Jeremy Duncombe, director of Intermediary Distribution at Accord Mortgages, said: “Our appetite to lend and the funding we have available is not the issue. It is purely the volume of applications received which meant we could not maintain the service levels we pride ourselves on and which we know brokers value when they choose to place business with us.
“We have seen phenomenal demand for our products, including our two busiest days of applications in the 17 year history of Accord. We therefore made the difficult decision to withdraw the 90 per cent LTV product range on Monday to enable our underwriting team to process all applications within our preferred service levels.”
Chris Barker, managing director, Manchester Money, wants the big lenders to work together to find a way of supporting the market.
He said: “The sensible way around all this is for lenders to have dialogue with each other and then agree to come back at the same time. A house market crash will be caused more from lack of funding available, not possible future redundancies and as far as I can see that funding is still available from lenders. From what I am seeing, there is definitely demand out there.”