Offers available at the high loan-to-values, which are typical of first-time buyers, dropped away steeply when lockdown struck. This was partially because physical valuations, a regular feature with high LTVs, went on ice.
While a few plucky lenders remain in higher LTVs for first-timers, it’s not clear when – or even if – others will return any time soon.
“It’s a very fluid part of the market, with many lenders not sustaining products for very long. It changes every day,” David Hollingworth, associate director, communications, at London & Country Mortgages, said.
First-time buyers with a 15 per cent deposit can still access a range of options, and the rates remain attractive, though they’ve edged up.
But first-timers with a 10 per cent deposit are in a bun fight for a more limited range.
“That’s one of the issues causing the state of flux with products coming and going rapidly. The lenders that are in attract good demand. But they don’t want to be doing big swathes of lending at 90 per cent,” Hollingworth added.
“We don’t even talk about 95 per cent now.”
Aaron Strutt, product and communications director, Trinity Financial, agreed: “We’re at the stage where, if you have a five per cent deposit it’s pretty much impossible. With 10 per cent, if buying a flat, it’s extremely difficult. A house is not quite as difficult.”
Aaron cites Nationwide as offering first-time buyer mortgages for those buying a house.
“It’s a way of limiting the lending. They were out of 10 per cent deposit lending for a while, which doesn’t look great,” he added.
Lenders dip in and out at 90 per cent LTV
Brokers are generally appreciative of Nationwide’s return to 90 per cent LTVs for first-timers, although it has restrictions, such as only a quarter of the deposit sum can be gifted by family.
Other lenders have dipped in and out of the market since lockdown started easing.
“There are deals at 90 per cent. We should thank the lenders who keep plugging away trying to offer something at 90 per cent. But there are simply not enough of them to get stability in that area,” Hollingworth said.
HSBC withdrew from 90 per cent LTVs after sticking it out for a long period. Others have come and gone, including Accord and Platform.
But Nationwide’s commitment to the 90 per cent LTV space has so far not influenced others to join back in.
“We’d have hoped that would bring some of the bigger lenders back into that space, but so far it’s slim pickings.
“It doesn’t look like we’ll have a burgeoning 90 per cent market in the medium-term at least,” according to Hollingworth.
Earnings to house price ratio 6.3
Another option for first-time buyers with a 10 per cent deposit is Virgin Money – but only on a seven- or 10-year fix. This “probably isn’t that appealing for first-time buyers,” Strutt said.
The upshot is that most first-time buyers will need to raise a 15 per cent deposit.
At the Halifax House Price Index’s current average price of £245,747, that equates to £36,862.
Across the market, for all buyers, the average multiple of house prices to earnings has risen from 5.1 in the five years 2020-2014, to 6.1 in the five years 2015-2019, up to 6.3 so far this year.
“It’s not impossible, but it’s very difficult,” Strutt said.
“When the crisis hit lenders really did scale back on lending. Apart from HSBC, it was very difficult.
“The markets did recover a little bit for FTBs with lower deposits, but now it does seem like it’s getting tricky again,” Strutt added.
Darren Meehan, director at Bright Money Independent, sees a tough challenge for first-time buyers in his local Oxford catchment. He said: “Borrowers will have to find more deposits from family and push for pay rises.”
But pay increases may be wishful thinking for many people. Labour market economist John Philpott said real earnings are likely to remain flat, at least in the near-term. “Young earners will bear the brunt of constrained earnings growth over the next few years, particularly if demand for labour remains weak in consumer-facing service sectors, which hire a large share of youngsters.”
While the multiple of average earnings to house prices stays high and borrowing options limited, the mortgage market for first-time buyers looks likely to continue to be rough in the medium-term.
“We’re not officially in a crisis for first-time buyers, but lenders are not helping. Higher LTV offered by all lenders would hopefully spread the risk,” Meehan said.
Meanwhile Strutt added: “We’re waiting to see. . . well, what are we waiting for? We are waiting to see if lenders come back in when things stabilise a little bit more.”