Chris Sykes, associate director at Private Finance, did not disclose which lender was contemplating mortgages at this tier but said it was the first hint he had got from any lender, as others were comfortable where they were.
He said: “Although it’s somewhat approved by this lender, their big caveat is they don’t want to be the only one doing it as they don’t want to be seen as lending irresponsibly and they would be absolutely inundated.”
Borrowers with a five per cent deposit have had little mortgage choice since the pandemic struck nearly a year ago; the lender would have to absorb all the demand alone in an environment with record high property prices which are speculated to fall.
Sykes added: “Most [lenders] want to wait until furlough is over and to see the general long-term impact of Covid-19 on the economy.”
He also said any return would be slow and measured, like the relaunch of 80-90 per cent LTV deals.
“Although they’ve hinted at it, I think it will be a little while before we see it come back. It’s encouraging that this lender is actually happy to do it, but I think we’re still quite a way away from a return,” Sykes said.
Bottled up demand
Christopher Hall, mortgage adviser at Mortgage Guardian, had also heard hints of a lender reinstating 95 per cent LTV mortgages and also doubted a return would be immediate.
Hall said: “Demand for 95 per cent LTV mortgages has bottlenecked so when it comes back it will be like a champagne cork – the lender who comes back first will be overwhelmed.”
Sykes suspected the lender would restrict who and what properties it would lend on to minimise risk.
“Even if this lender did come back at 95 per cent LTV there wouldn’t be an avalanche of other lenders following suit straight away. It will be slow, maybe over a six-month period, before there’s a steady return like we see with 90 per cent LTVs now.”
Ramped up rates
Nik Mair, managing director of London Mortgage Solutions, said: “It would be amazing for the market but there are concerns around interest rates. 90 per cent LTVs are already at three per cent so 95 per cent LTVs would probably be priced at four per cent, which might put some people off.
“But I think it would still be good.”
Hall said with the Bank of England base rate at a record low of 0.1 per cent, lenders were making money “hand over fist” with mortgage pricing and product fees which were not always affordable for those on lower incomes or with smaller deposits.
He added: “There doesn’t seem to be much reward for the average working person.”