The changes will apply from 24 July and are occurring on two-, three- and five-year fixes.
Rates for the two-year fix at 90 per cent LTV are reduced by 0.10 per cent to 1.89 per cent with a £999 fee and 2.29 per cent with no fee.
Three-year fixes are also reduced by 0.10 per cent to 2.14 per cent with a £999 fee and 2.44 per cent with no fee, with five-years fixes down to 2.29 per cent with a £999 fee and 2.49 per cent fee-free.
Nationwide director of mortgages, Henry Jordan said: “By improving the competitiveness of our two-, three- and five-year fixed rate products, we are aiming to support those mortgage customers looking for payment security.”
However, it appears the central bank is not overly concerned by this, noting that consumers are far less keen to borrow and that mortgage debt is growing no faster than the overall economy.
Bank of England executive director for financial stability, strategy and risk Alex Brazier added that it would take a significant interest rate shock to push a substantial number of households into trouble for making their mortgage payments.
Easy mortgage credit conditions
Speaking at the University of Warwick, Brazier said: “Although banks have a real appetite to lend, households don’t have the appetite to borrow. Credit conditions in the mortgage market are easy and mortgage pricing competitive.
“The share of new mortgage lending at loan-to-value ratios above 90 per cent is approaching pre-crisis highs as the price of such lending falls relative to that on lower LTV mortgage lending. And yet, mortgage debt is growing no faster than the economy as a whole.
“Of course, the level of household debt is high. But the share of households with very high debt burdens is in fact very low.
He added: “In a low mortgage interest rate environment, only around one per cent of households face debt servicing costs of more than 40 per cent of their pre-tax income.
“It would take a large and sudden rise in interest rates – of up to 300 basis points – to take that fraction of households to around its historic average.”
Economic vulnerability
Brazier also noted that the underlying level of economic vulnerability has returned to a standard level “after a long period in the aftermath of the financial crisis in which it was subdued as debt levels fell back”.
“That’s consistent with the Financial Policy Committee’s judgement that the degree of underlying economic vulnerability is at a standard level,” he continued.
“That judgement drives our assessment of how resilient the financial system needs to be, in particular how large should be the buffers of capital banks run with.”
Among that data, however, was an interesting nugget about the increase in high loan to value (LTV) mortgage lending (above 90 per cent LTV) which stood at 4.4 per cent of all lending in quarter four 2018, compared to 3.8 per cent a year earlier.
That perhaps gives indicates how the lending community might look to address lending activity falls in other product areas.
But it also seems to show that lenders are now more willing than they have been over the last decade to look at the needs of borrowers – particularly first-timers – and address the biggest obstacle most will face, either the deposit or securing enough equity to get a lower LTV deal.
Modern-day niche opening
For the most part, the demand for high LTV loans has never really wavered.
While it’s good news that borrowers have more options in this product space, this change has only really gathered momentum over the past 12 months.
Part of this is also a competition question being answered by lenders who are simply not in a position to challenge the top six lenders’ hegemony, particularly for mainstream borrowers looking to secure 50-70 per cent LTV loans.
If you fit this brief, then the rates are eye-wateringly low and few other lenders outside the top strata can compete with the lower costs of funding.
Therefore, where else do you go for your business? Especially if you are, for example, a building society or other lender that can’t simply race to the margins of risk, and open-up to those with adverse credit?
Instead, what we have seen is a move to a modern-day niche of first-time buyer and high LTV lending.
However, for many lenders this has also been accompanied by the need to involve the parents of the borrowers in some capacity, be they as guarantors or by having them putting their money on the table.
Do not expect further growth
The more specialist nature of this type of lending has to some extent been seized upon by building societies, who can use private mortgage insurance to make their play in this sector but to also ensure they are covered should the worst happen.
I suspect the bulk of the increase in higher LTV lending might well be coming from these traditional lending sources looking for opportunities in an area which might be described as ‘non-mainstream’ – even if it is from the lifeblood of the market.
All in all, it’s a positive but I’m not certain that, in a year which is so unpredictable, I’d be jumping to a conclusion that suggests the supply of higher LTV lending can only continue going upwards.
That would, of course, be my preference because I feel there is a strong demand for such products and there are tools available that can mitigate the risk and deliver competitive pricing for those who should be able to access the finance they need.
Lending statistics from the Bank of England and FCA show a rise in total lending in quarter two this year, seemingly fuelled by greater levels of higher loan-to-value (LTV) and loan-to-income (LTI) loans. These are traditionally the preserve of the first-time buyer.
Indeed, this type of lending rose to over a fifth of all business, with high LTV lending increasing quarter-on-quarter from 43.9% to 45.1%, while the number of loans above 90% LTV also ticked up.
Overall, it appears first-timers are in a stronger position than they have been for some time.
This conclusion has also been borne out by AmTrust’s own quarterly LTV Tracker which looks at the cost of higher LTV loans for first-timers and also reviews the number of product options available to them.
Strong competition helping
The good news is that strong competition in the mortgage market is finally impacting on the cost of high (95%) LTV loans, with the average rate coming down by a significant 35 basis points.
This means the rate/cost differential between those who can only secure a 5% deposit and those who can put down 25%, has noticeably narrowed.
Whereas previously those in the high LTV bracket could expect to pay 66% more than their lower LTV counterparts, that has now dropped down to just over 50%.
That is certainly a big gap, and one that could clearly make all the difference in terms of mortgage affordability and securing the home, but it is at least going in the right direction.
Product numbers too are benefiting from more lenders being active and competitive in the high LTV space.
For the three scenarios we test product numbers went up across the board. In some circumstances depending on term and type, the numbers reached three figures for the first time.
Again, when compared to the thousands of products available to lower LTV borrowers it does not seem like much progress has been made, but given in previous iterations of the Tracker the products on offer barely made it into double digits, you can see how far the market has come.
Best chance in a decade
Overall, it’s still the case that first-timers with small deposits can consider themselves behind the eight ball.
Let’s not forget that offering a product does not necessarily translate into lending activity and many of these lenders will only have limited tranches of funding available to a borrower demographic they consider to be higher risk.
But, if the client can put together 5% deposit and meet the affordability criteria, then it seems like they have a much better chance of securing a property than at any time over the past decade.
Extending the Help to Buy Scheme to 2023 will also help, as will more challengers and specialists eyeing up the first-time buyer market and more traditional lenders willing to offer higher LTV loans. More can always be done but it’s fair to say that, given recent history, it’s a positive to be moving in the right direction – long may this continue.
Its quarterly LTV Tracker found lenders had absorbed the Bank of England base rate rise and further cut rates on 95% LTV products by an average of 34 basis points over the third quarter of 2018.
With rates on 75% LTV deals increasing by only one basis point from the second quarter of the year, it means the gap between 75% and 95% LTV rates has shrunk to around 1.86% from 2.21% in July.
AmTrust said it believes that “as the year comes to a close there will be greater competition in the high LTV sector as lenders seek to secure increased business from first-timers and greater margin on their loans.
“Even with further increases to Bank Base Rate (BBR), product pricing for lower-deposit mortgages may sustain their competitiveness as lenders look to increase business share in this part of the market,” it added.
Product numbers soaring
Greater lender interest in first-time buyer business is also being reflected strongly within the market with a growing number of products for both 75% and 95% LTV borrowers, AmTrust found.
For those wishing to purchase an average first-time buyer home or an average-priced UK house, two-year product options at 95% LTV hit three figures for the first time.
Meanwhile all 75% LTV product numbers also increased.
However, there is a marked disparity between those with a 25% and 5% deposit, with hundreds or even thousands of products targeted at those with larger deposits.
It also noted that the biggest concern to securing a property remained achieving the required deposit.
Significant deposit to find
AmTrust Mortgage & Credit business development director Pad Bamford (pictured) said there was a lot to be encouraged about in this quarter’s report with cheaper rates and a greater number of high LTV products, but concerns remained.
“Saving for a deposit remains the biggest barrier to overcome and we are still at a point where many potential first-timers can only get on the housing ladder with the support of the Bank of Mum and Dad,” he said.
“While product numbers have moved upwards for high LTV borrowers, compared to those available at 75% LTV, they are but a drop in the ocean.
“It means that, not only do first-timers have to save a significant deposit in order to find more product options but they might not meet the affordability criteria even if they have a 5% deposit – because the monthly mortgage cost is that much more.”
The 90% LTV products are available for purchase and remortgage, with a maximum loan size of £500,000.
Rates start from 4.04% for a two-year fixed rate with a £999 product fee and 4.39% for a two-year fixed rate with no product fee.
The exclusives are available through specialist distributors including: 3mc, AToM, Brightstar, Brilliant Solutions, Chaseblue Loans, Clever Lending, Complete FS, Connect for Intermediaries, Ingard, Pink Pig, Positive Lending and Promise Solutions.
Secure Trust Bank Mortgages head of sales and marketing Tony Hall (pictured) said: “House price inflation may be relatively flat, but there is still significant demand from clients for high LTV lending and often borrowers who are self-employed, contract workers or earn income from multiple sources have limited options in this area.
“We specialise in lending to exactly these types of clients, with empowered underwriters who see lending criteria as a helpful guide, not an insurmountable hurdle.
“The fees free option on the product will be particularly useful for brokers as clients looking for a 90% LTV mortgage would often prefer to pay a slightly higher rate than find the money for an upfront fee,” he added.
Client appetite
Doug Hall, director of 3mc, said: “We have a huge amount of demand from brokers whose clients need a lender that can combine 90% LTV lending and sympathetic underwriting, so this is a very welcome move by Secure Trust Bank.”
Brightstar Financial head of residential mortgages Gina Blagden said: “There’s a growing number of self-employed workers and contractors with reliable incomes who don’t have access to significant deposits and there will always be appetite from clients for 90% LTV lending in this area, particularly from first-time buyers.”
