"The important point here appears to be around sustainability, and I suspect, at least initially, we will see lenders dipping in and quietly dipping out as their appetite for volume is satisfied."
Initially, the focus was on getting out to market and in front of the competition, particularly from those not relying on the Government’s offer. As a result, almost every week since the Budget announcement, we have seen new lenders come to market with their take on 95% LTV.
A recent straw poll of Stonebridge advisers concluded that over 70% had seen an increase in high LTV client enquiries since the Budget, which shows the impact such announcements can have on consumer interest.
Back in March I wondered just how competitive these products might be, and it seems that the answer is ‘pretty competitive’. As you’ll know, a first-time buyer putting down a 5% deposit on a £250k property, has (at the time of writing) well over 80 options.
The pricing goes from just over 3% to 4.7% for discounted options to between 3.45% and 4.54% for fixed-rate products of varying terms and it is interesting to see a growing number of building societies, for example, softly moving back into this space, no doubt either funding these new, higher risk products, using their own balance sheet or using the traditional mortgage insurance guarantee policies that they have had available for many years.
Of course, for many of these lenders there will not be a large tranche of funding available for 95% cases but it collectively all adds up to far greater consumer choice than existed prior to the Budget. At that time, you were lucky to find five 95% LTV products, and all required some sort of parental guarantor, whereas with launches from Bank of Ireland, Accord, Skipton, and the bigger mainstream banks (amongst others) these might be regarded as ‘vanilla’ 5% deposit deals.
The important point here appears to be around sustainability, and I suspect, at least initially, we will see lenders dipping in and quietly dipping out as their appetite for volume is satisfied. This will be down to the funding tranches but as (I hope) confidence grows in this space and as lenders acknowledge the quality of the business they can originate and, no doubt, the margin available, they will feel more inclined to up their commitment such that they stay in the market for longer periods.
Several commentators have focused on whether any of this would have been possible without the Government intervention, with the suggestion being that we would still be waiting to see 95% LTV products without it.
I’m not so convinced, because undoubtedly April/May 2021 in the mortgage market feels a lot different to what April/May 2020 did. At that time, it was completely understandable that lenders constrained their high LTV ranges because who knew how that first lockdown period would unfold and what the economy would be like in subsequent periods.
This return to 95% LTV feels more natural than contrived, and I’ve noticed lenders attitude to risk shifting in recent months as the market conditions change, plus of course there is always a desire to secure market share and restore a decent margin. High LTV product ranges help lenders to do this.
Once this snowball starts rolling, then you are more likely to see others watching, reviewing, and following. After all, most lenders will have a percentage of their new business volumes that they want to write at higher LTV levels, and given that we’re just coming out of Lockdown 3, the Spring is clearly here, and we’re aware of what behaviours consumers/borrowers might exhibit post-any lockdown, it seems to make sense to broaden product ranges and price for risk, to play into that consumer demand.
Whatever your perspective, the fact that advisers have a growing number of high LTV product options to offer their clients is largely good news. This has been a segment of the market which can readily be described as ‘under-served’ over the last 12-18 months – reversing that drought should be a fillip to all.
