This week Mortgage Solutions is asking: As rates rise on high loan to value deals (LTV), are you worried about the financial impact on first-time buyers and low deposit borrowers?
Jo Jingree, mortgage adviser, Mortgage Confidence
It’s a concern because lenders have more power when there’s fewer players in the market and I’ve already seen clients hit by the rate rise. They haven’t been huge, but I think it’s something to keep an eye on.
Like every broker in the country I just want more lenders to come in at 85 per cent LTV and over. When that happens, it will inject more natural competition into the market and increases in rates will be less likely. The sooner that happens the better.
First-time buyers (FTBs) are being impacted and it will affect the property market as well. It’s so difficult to get the right high LTV deal that people are putting plans on hold. If they don’t happen to fit the criteria of the mortgages being offered, then they’re either without a mortgage or go with one at a higher rate.
It’s sad having to decline good quality business that I would have been able to do a few months ago but I have to be honest and let people know that they aren’t suitable for some deals.
I think Help to Buy gets around the issue as the equity loan increases the loan size so this might push more people into shared equity deals.
I finally managed to get one of my clients a deal after a two week battle and the rates went up in the meantime so it’s costing them more. They found their dream home and had been looking for ages so even with the rate increases they didn’t want to pull out.
Some people can be flexible, but others are forced to just go with the rates that are available.
Piers Mepstead, managing director, Financial Advice Centre
Covid-19 has reshaped the mortgage market and subsequently the products available. Lenders react to changes in the market by ensuring their business model protects their investments.
But unfortunately, this disproportionately impacts first-time buyers and those with the lowest deposits.
First-time buyers and renters are facing bigger barrier to purchasing a home. For those renting this often means continuing to pay out high rents in excess of the equivalent mortgage payment and being unable to afford to save for a deposit.
This unfair disparity locks hard working individuals into a seemingly inescapable rental cycle.
Our society is becoming more agile and responsive, but lenders do not seem to adapt their lending criteria to reflect this nor are they responding to the widening pool of customers who fit into the first-time buyer category.
Surely it is time for lenders to catch up to the new ways and to widen their view of a potential purchaser beyond deposit. There are many ways to do this including putting more weight in other lending criteria such as proven history and ability to repay.
This feels familiar to many of us, as lending criteria becomes more restrictive after a seismic shift in the economy, the last time being the credit crunch.
Mortgage professionals and consumers need a robust and modern system of agreeing lending that remains consistent in economic good times and bad.
A system that is both fair to borrowers and encourages and supports FTBs, instead of making them pay the penalty for bad lending decisions of the past.
Louis Down, digital marketing manager at HQ Mortgage and Finance
The 90-95 per cent LTV market is clearly of some concern to lenders at the moment, we’re seeing a lot of repricing and a great deal of lenders pulling out of the space altogether.
We believe the priority has to be ensuring products are available at these LTV ranges, if that means the lenders have to reprice in order to manage their risk then so be it.
That is a far better outcome than withdrawing products altogether which effectively shuts out a huge number of FTBs and inevitably has a knock-on effect on the housing market.
Even with higher rates attached to these products, it’s important to remember that rates have been very low for a long time and what we perceive as “expensive” now should be considered in the wider context.
We need lenders to continue offering 90 and 95 per cent products to customers, but they have to be prudent.
We are confident that the rates are as competitive as they can be, given these lenders would like their share of a large market, but they have to manage their risk and meet PRA requirements and we must respect that.
Looking solely at the personal impact on first-time buyers, one potential benefit is that some people might have to defer their purchase until the economy is improved. By which time they should be in a more stable position and there should be a reduced risk of them becoming unemployed.