First-time buyers taking high LTV mortgages fear negative equity
A survey by mortgage broker First Mortgage of more than 1,000 first-time buyers revealed 61 per cent are worried that their house will be worth less than they paid for it when the come to move home or remortgage in the future.
The concerns come as Halifax reported that the average house price increased to £261,000 after an annual rise of 9.5 per cent adding an extra £22,000 to the price tag of an average UK home.
With demand outstripping the supply of homes coming to the market, and some buyers armed with more savings that usual because of lockdown restrictions, bidding wars are breaking out and property prices are rising sharply.
Mortgage experts are concerned that first-time buyers are unaware of the risks of paying a high price for a property. First Mortgage’s survey results showed that 41 per cent did not know what negative equity meant and 21 per cent of first-time buyers thought it referred to property wear and tear.
Negative equity occurs when the outstanding balance on the mortgage exceeds what the property is valued for.
Some buyers had considered how they act should they end up in negative equity in the future.
More than 50 per cent said they would check with their mortgage lender if they could make overpayments to bring the value of their mortgage debt down.
Compliance director David McGrail of First Mortgage said: “Many first-time buyers would have been relying on high loan to value mortgages to secure their first property and just a small drop in house prices could leave them at risk of negative equity. Whilst being in negative equity does not cause immediate issues, it does mean that homeowners will have difficulty remortgaging in the future, meaning they may lose access to the very best rates on the market.”
McGrail said to avoid getting into negative equity buyers should do their research first to establish if the property represents value for money.
“Paying over the odds is the most likely cause of finding yourself in a negative equity situation,” he added. “If you find yourself in negative equity it is important to speak to a broker to understand your best way out of the situation which ordinarily would be a plan to overpay your mortgage on a monthly basis to bring the outstanding mortgage balance beneath the value.”
Newcastle BS to be first lender to partner with Deposit Unlock initiative
The new mortgage indemnity scheme was developed by the Home Builders Federation and insurance brokers Gallagher Re. The pair have teamed up with Newcastle Building Society to launch the scheme later this month.
Deposit Unlock allows borrowers to secure a new-build home with a purchase price of up to £330,000 with a deposit of five per cent.
Participating housebuilders will pay the cost of insuring mortgages through a percentage of income from house sales.
Lenders will effectively only underwrite up to 60 per cent LTV.
Stuart Miller (pictured), customer director at Newcastle Building Society, said: “Key to our purpose as a regional building society is to help more people get on and up the property ladder especially those without access to the bank of mum and dad.
“Being the first lender to adopt the scheme means we’ll be providing new-build buyers with more options to access low-deposit mortgage products, and helping to address the pressing need for more homes to be built.”
The Home Builders Federation wants to encourage other lenders to join and plans to roll the initiative out on a national level. Until then it will be restricted to the North East of England.
Newcastle BS will release product details later this month.
The Nottingham cuts 95 per cent rate
The 3.90 per cent, previously priced at 4.10 per cent, has no administration, booking or valuation fees.
The 1.60 per cent remortgage deal, open to homeowners with a 30 per cent deposit, is fixed for two years and is fee-free.
The Nottingham’s head of intermediary sales Nikki Warren-Dean (pictured) said: “Maintaining a closeness to the market and listening carefully to broker feedback is important as it helps to keep us versatile, flexible and proactive with our product launches and pricing.
“These two products are undoubtedly designed for people at differing ends of the property buying spectrum. However, what they have in common is they are borne of our desire to have a range catering for all, and they are both competitively priced.”
Good borrowers rejected by super-strict credit scoring on 95 per cent guarantee scheme
On the Treasury’s orders, mortgage lenders using the 95 per cent mortgage guarantee scheme can only lend to “creditworthy” borrowers.
Lenders using the scheme get government protection from some of the losses they may incur should the loan go bad.
Mortgage brokers argue, however, that banks with the government’s backing have set the credit score bar too high. They have reported even borrowers with an A credit rating are being declined.
Underwriting is so restrictive, brokers suspect higher-than-usual credit scoring is being applied to borrowers who have a five per cent deposit.
Simon Butler, head of mortgages, CMME, said: “Lender score cards appear to be far more stringent at higher LTVs than was the case pre-pandemic, despite the government shouldering part of the risk via the mortgage guarantee scheme.
“The summer months are a peak time for house buying and selling so the hope is that lenders relax their approach to further support the first time buyer and self-employed markets.”
On the launch of its 95 per cent mortgage deals Halifax made clear to brokers its credit score would be tougher than the one used in the past.
In an email to intermediaries, it wrote: “An enhanced credit score requirement will be applied to any applications on this scheme.”
NatWest does not accept 95 per cent LTV applications through brokers.
However Barclays said its 95 per cent credit score has been set in line with its existing policy, not higher. Nationwide said its credit score approach was aligned to its 90 per cent lending. Santander would not comment on its credit score level but said its 95 per cent lending volumes have returned to pre-pandemic levels. Santander will not offer any self-employed borrowers an LTV of more than 75 per cent.
HSBC said it worked hard to ensure its credit scoring policy was fair and appropriate to support its customers and levels of acceptance had been in line with the bank’s expectations since it launched using the mortgage guarantee scheme.
Yet getting a case past the underwriting team when the borrower has just a five per cent deposit is no mean feat, say brokers.
Simon Cutler, director, Blackdown Financial, said: “Even after an Agreement in Principle (AIP) comes through the underwriting is still really restrictive.
“To qualify for a 95 per cent mortgage your client has to have a 100 per cent clean record and a perfect credit score. Lenders like to market that they are offering these high LTV deals but when it comes to underwriting they try and trip you up.”
Richard Campo, managing director, Rose Capital Partners, says he hasn’t had many issues with not getting cases through at 95 per cent loan to value. His team order the credit report before submitting an AIP and they will not put the case through if there are any missed or late payments showing because they know it will not be approved.
But even Campo’s stringent approach to pre-qualifying borrowers does not have a 100 per cent success rate.
“We did have one case recently that was declined. It was completely squeaky clean we don’t know why it was rejected. Lenders are using tight scorecards and any wrinkle will kick it out.”
Campo said the issue may have been because the borrower worked in hospitality, although her job had not been affected by the coronavirus.
“Maybe banks are going sector specific when they decide who to lend 95 per cent to,” he added. “If I was a lender that’s what I’d do.”
Brokers agreed that to stand the best chance of getting your deal approved at 95 per cent LTV, extra leg work was needed. Support from business development managers was also invaluable.
Jane King, mortgage and equity release adviser, Ash-Ridge Private Finance said due to the high house prices in London, Surrey, Hampshire, Berkshire and Middlesex, where she advises, she is dealing with lots of enquiries from borrowers who need 95 per cent deals.
King says her first piece of advice to buyers is “prepare to cut your cloth,” because they’re not going to get an income multiple of five times their salary. After that King insists on seeing her clients’ payslips so she knows exactly how much they earn instead of using their estimation of earnings.
“You’d be amazed how many borrowers just take a stab at how much they earn, or lump in car allowance with their basic salary,” she said.
“Lenders aren’t out to trick you. The surprises come from the clients not telling you the full story.”
King says the lenders offering 95 per cent LTV have never liked adverse credit so their strict stance on clean credit is to expected. She admits, however, some of their policy decisions discount a lot of good buyers.
“Most won’t look at flats and most want PAYE borrowers and no furlough,” she said.
King praised Accord, a lender offering 95 per cent deals outside the government’s scheme, for its approach to reviewing self-employed applicants with a five per cent deposit.
She said Accord were happy to review cases for self-employed borrowers looking for a 95 per cent mortgage, and the outcome depended on the sector they work in and the condition of the accounts.
Cutler singled out Skipton Building Society, another lender offering mortgages outside the mortgage guarantee scheme.
He said: “The broker has to do a good job upfront and then with the help of a BDM, who knows exactly the underwriters’ appetite, you have chance of getting it through.”
Butler said the CMME team had recently decided to complete the decision in principle far earlier in the house buying process because of the volume of declines the firm has received at high LTVs.
CMME specialises in mortgages for contractors and self-employed borrowers. “This isn’t based on any concerns with adverse credit,” he added. “We regularly receive declines or alternative lending decisions for clients with clear records and low unsecured debts.”
Mortgage rates at 95 per cent fall but borrowers told to consider bigger deposits
There are now 112 deals in the 95 per cent loan to value (LTV) tier compared to 34 at the start of April, according to Moneyfacts.
Competition from the UK’s biggest banks as they began launching five per cent deposit deals from mid-April with the backing of the government’s mortgage guarantee scheme has driven average two and five-year fixed rates down by 0.45 per cent and 0.15 per cent respectively.
Average two-year fixed rates are now 4.02 per cent and average five-year fixed rates are 4.47 per cent.
Chancellor Rishi Sunak announced the 95 per cent mortgage guarantee scheme in his Budget speech on 3 March. Lenders using the scheme pay a fee and in return the government agrees to cover a significant proportion of any losses a lender may incur if the property is repossessed.
However, the cheapest 95 per cent mortgage deals currently available both sit outside the scheme.
The lowest rate available in the 95 per cent LTV sector remains the five-year fixed rate Springboard mortgage from Barclays priced at 3.45 per cent. To be eligible for the deal borrowers need a guarantor to deposit savings in a linked account equal to ten per cent of the purchase price.
Borrowers looking to fix their repayments on a five-year fixed rate deal, and who are not able to get family assistance, can access a rate of 3.89 per cent from Coventry Building Society.
But interest rate improvements in the 90 per cent LTV market mean even bigger savings if borrowers can afford to put down a larger deposit.
Average two and five-year fixed rates at 90 per cent LTV are 0.60 per cent and 0.54 per cent lower than those on offer to borrowers with just a 5 per cent deposit available.
Small reductions in both two and five-year average fixed rates in the 90 per cent LTV tier since the beginning of April mean borrowers can now access rates of 3.42 per cent and 3.63 per cent respectively.
According to Moneyfacts, if borrowers stretched their deposit from five to ten per cent, based on current average mortgage rates, they could save £1,486 over two years and £3,379 over five years.
Eleanor Williams, finance expert at Moneyfacts.co.uk, said: “As house prices and rents continue to climb, aspiring homeowners may have been waiting with bated breath for the launch of the government mortgage guarantee scheme, supporting those with small deposits to take on a mortgage.
“However, affordability may remain a concern with borrowers regardless of the new scheme and generally consumers will find much more choice and lower rates if they can stretch their deposit to ten per cent.”
Skipton calls for fully-packaged 95 per cent cases as volumes mount
Brokers have been asked to make full use of all communication channels which includes web chat, eMortgages and the phone if they need case updates so the lender’s team can help as many brokers as possible.
In March, Skipton’s mortgage completions rose 43 per cent year on year as borrowers clamoured to benefit from the Stamp Duty holiday that has been extended from 31 March to 31 June.
And as the tax holiday drives up demand for homemovers, the return of 95 per cent LTV mortgages has reinvigorated the first-time buyer market.
Skipton relaunched 95 per cent deals on 22 March and has seen “strong demand” from the start, with a 164 per cent increase in DIPs and 64 per cent increase in telephone queries and web chats.
Alex Beavis (pictured), Skipton’s head of mortgages, said: “Whilst we’re offering these deals to homemovers too, what’s great to see is that 84 per cent of all our demand is coming from first-time buyers; proof that 95 per cent lending supports a squeezed and underserved segment of aspirational homeowners who for the best part of a year have been locked out of the housing market.”
Despite seeing demand for mortgages soar, Skipton said it is pleased it has managed to maintain its nine-day application-to-offer turnaround time on new purchases.
Beavis added: “My plea to brokers is to retain patience with all lenders during these exceptionally busy times, and as always but especially with 95 per cent lending, try to package cases fully before submission to ensure the quickest time to offer possible.”
Top ten mortgage broker stories this week – 09/04/2021
Elsewhere, TSB raised its maximum age, more 95 per cent LTV mortgage choice hit the shelves and a thought-provoking feature on mental well-being revealed a quarter of brokers responding to our latest poll were struggling in some way to cope with the stresses of the pandemic.
NatWest cuts rates and increases cashback in product refresh
Skipton BS expands 95 per cent LTV range and cuts rates
Halifax overhauls mortgage criteria for all non-UK national applicants
TSB launches 95 per cent deals
Nationwide cuts rates up to 80 per cent LTV
Thirteen changes to tax and benefits that could impact clients
TSB revises BTL affordability and raises maximum age to 80
MPowered Mortgages’ BTL range added to L&G Mortgage Club panel
Rising homeowner equity gives remortgage market positive outlook – LMS
Evidence-based strategies can make all the difference to brokers’ mental wellbeing – poll result
Top ten most read mortgage broker stories this week – 26/03/2021
Elsewhere, an opinion piece from Hiten Ganatra that dished out a healthy note of scepticism of the government’s 95 per cent LTV grabbed readers’ attention as did news that more shared ownership homes would be built using Right to Buy receipts.
Lenders tighten self-employed affordability – MBT
Let’s not expect miracles from government’s mortgage guarantee scheme – Ganatra
TSB confirms April return to 95 per cent lending
Vernon BS launches cheapest 90 per cent LTV mortgage
Shared ownership boost as councils will build more homes from Right to Buy income
Accord and Coventry BS cut high LTV rates
Skipton relaunches 95 per cent LTV mortgages but cautions on short-term availability
Virgin Money cuts high LTV rates by up to 0.16 per cent
Greedy, unethical brokers must not be allowed to pollute bridging market – Coates
Quarter of homeowners miss mortgage payments due to ill health – MetLife
Top ten most read mortgage broker stories this week – 12/03/2021
Concerns that restrictive loan to income (LTI) policies could freeze first-time buyers out of the market, drove an analysis of the impact of LTIs on first-time buyers to the top of the most read stories this week.
Elsewhere, innovation from Habito in the form of a 40-year mortgage and Metro’s foray into near prime lending grabbed attention.
Updates to the cladding guidelines and an extension to the eviction ban made for a busy week in the mortgage and housing markets.
Loan to income changes could shut first-time buyers out of 95 per cent market – analysis
Mortgage commitments soar as high-LTV lending plummets and rates rise – FCA
Metro Bank launches near prime mortgage range
TSB reduces high LTV rates and Accord amends affordability calculations
Tightening mortgage affordability will limit house price rises – OBR
RICS updates EWS1 cladding guidance to ‘unlock’ the market
Updated: Habito launches 40-year fixed rate mortgage with £1bn fund and stepped LTIs
Eviction ban extended – but still no financial support for tenants
NatWest cuts rates and sets up stamp duty broker support line to push cases through
Virgin Money and Atom Bank execs join Perenna ahead of 30-year mortgage launch
The 20 biggest mortgage stories of 2020
A herculean effort has been made by mortgage intermediaries, distributors and lenders to keep people moving and protect their savings by refinancing borrowers on to the best mortgage deals.
As the pandemic raged on, stories of government bailout packages, mortgage holidays and stamp duty savings dominated the news.
But they weren’t the only stories to make the top 20 biggest headlines on Mortgage Solutions this year.
Here’s a look back at the most read articles of 2020.
Furlough and self-employed grant schemes extended until end of April
Man uses fraudulent HMRC payments to put offer on £2.6m house
HMRC tax dodge campaign catches thousands of landlords
Boris Johnson plans 95 per cent mortgage scheme
‘Expect a government U-turn on stamp duty’ – Star Letter 18/12/2020
Two-year fixed mortgage rates hit three-year low
Mortgage lenders warned over risk from gambling addicts as credit card ban takes effect
Mortgage holiday extensions should impact credit rating – Nationwide boss
Lloyds Banking Group fined £64m for 500k mortgage arrears handling failures
Homebuyers stalling purchases until after Budget hoping for stamp duty cuts
Homeowners to receive £5,000 vouchers for green renovations
Sunak unveils further support for employees, self-employed and businesses
Landlords look to coronavirus bounce back loans as deposit for properties
Landlords have ‘huge opportunity’ to expand portfolios as stamp duty bills halved by chancellor
Landlords could be hit with 45 per cent CGT – reports
Santander cuts landlord income sources for BTL affordability
TSB launches first-time buyer range with lower stress rate
Arranging mortgages on high rise homes with cladding — what you need to know
House prices surge to recover lockdown losses – Halifax
Start by November or risk missing stamp duty savings, homebuyers warned