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Negative equity risk makes lack of high LTVs on new builds ‘no surprise’

  • 02/06/2021
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Negative equity risk makes lack of high LTVs on new builds ‘no surprise’
Borrowers who do not want to use schemes such as shared ownership or Help to Buy are being held back by a lack of high loan to value (LTV) lending on new-build properties.


In turn, this is affecting the delivery of new homes, Barratt Homes has said. In its last update, the house-builder said buyers needed access to mortgage finance in order for developers to continue increasing housing supply. 

However, the difficulties with valuing new builds amid rising property prices has made lenders reluctant to open up to this part of the market. 

The government-backed 95 per cent mortgage guarantee scheme does not include new-build properties, nor do many of the 95 per cent LTV products launched independently by lenders.

Iain Sillett, mortgage and protection adviser at Right Mortgage, said there had been “multiple enquiries,” to his firm’s website from people wanting to buy new homes with a five per cent deposit, unaware of the scarcity of available products. 

He said this was likely restricting the new-build customer base, as along with changes to the Help to Buy scheme, “a home mover or someone starting over in life who previously owned a property has no prospect of owning a new-build property unless they have a 10 to 15 per cent deposit”. 

Sillett added: “Hopefully we will see a change of policy from the lenders and the removal of new build restrictions on these products.” 

Darryl Dhoffer, mortgage and protection consultant at The Mortgage Expert, said the last time he checked, there were only a handful of lenders operating at the 95 per cent lending tier with options only opening up slightly at 90 and 85 per cent LTV. 

He did understand why lenders would be hesitant towards new-build properties with the market being so active. In many cases, this has led to homes across the board seeing price inflation due to a lack of supply. 

He said: “Recent hikes in property prices, for all property types old and new, based on clients looking to beat the stamp duty holidays, has led to a wave of down valuations and new-build properties are following the same trends.  

“It’s no coincidence or surprise that lenders are cautious in the high LTV bracket, and availability of products show this.” 

He said it was also difficult for lenders to confidently find comparables for new builds when valuing, because the data was not always available. This was making the possibility of down valuations and future negative equity a threat. 

Dhoffer suggested that down valuations would continue this quarter until the demand for properties returned to normal along with the ending of the stamp duty holiday. 

He added: “We could see a realignment of house pricing from 1 October, which will be between 5 to 8 per cent reductions in some areas nationally.  

“Then, we’ll see more products come to market in the high LTV bracket, which in turn will help those clients with smaller deposits.” 

The market does appear to be slowly opening up, however, with Newcastle Building Society recently becoming the first lender to offer 95 per cent LTVs on new builds through Deposit Unlock, an insurance-backed scheme established by Gallagher Re. 


Other options still available 

Dhoffer said: “Until then, Help to Buy and shared ownership still remain viable options for those clients wishing to act now. But the question is; do you buy now with a higher deposit, use one of the schemes with a lower deposit or wait till later in the year when there may be more product choice and lower deposit without a scheme?” 

Lilla Dilliway, director at BlueWing Financials, said she had not seen any borrowers who were put off by the fact they could not get a standard mortgage for a new build at 95 per cent LTV. Instead, she noticed buyers with smaller deposits were naturally opting to use schemes to help them afford the usually higher-priced homes because it is often the only way for them to purchase. 

“I’m sure that there are people who would like to, and could afford to, buy a new-build property with a five per cent deposit outside a scheme, but we haven’t really come across many of these customers,” she added. 

This was also the case for Adam Wells, co-founder of Lloyd Wells Mortgages, who said he was “surprised,” that Barratt Homes had made the link between the construction of new homes and mortgage availability at all. 

“The majority of clients we have who are looking to purchase a new build property use the Help to Buy scheme. The ones who do not are lucky enough to have large deposits already,” he added. 

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