"There is a very strong argument to suggest lenders should be offering more products to those with less than a 5% deposit."
While the current mortgage market environment might feel like it is the best it has been for first-time buyers for some time, with a number of new product initiatives being launched recently and with some new property schemes appearing to get a little more traction, we can’t help but feel that it is still incredibly hard work to ‘make it happen’ and slim pickings when it comes to both property to purchase and the mortgage finance required to get you through the door.
Of course, Accord’s’ 99% LTV mortgage is to be welcomed, and might just make some potential first-time buyers look again in terms of what is now available to them, however in the more traditional 5% deposit sector, there is hardly a surfeit of products, while saving for that deposit especially if you’re renting remains incredibly hard, and often it is those who cannot draw upon the Bank of Mum & Dad to help them, who find this journey the most frustrating and difficult to pursue.
In our view as well, some in the lending community could be more ‘in tune’ with the needs of today’s first-time buyer. Just as Accord has recognised there is a sweet spot when it comes to deposit levels - £5k for example – others might wish to look at their pricing, their maximum LTV, or the flexibility (or otherwise) they offer to new purchasers who are often wanting (or needing) to move into another property within a shorter timescale.
We recently spoke to a client of ours who had bought a couple of years ago with her son on a sole proprietor/joint borrower arrangement. They had purchased a flat – not allowed on the Accord product it should be pointed out – and in the last couple of years it’s value has probably dipped a few percentage points.
They are now coming to a point where they will be remortgaging and of course, with such a situation, their options are limited. They are being hit by the value reduction, plus rates having increased significantly in that time, despite being good borrowers and a strong credit risk.
With that Accord product not being open to them, and with no other lender offering a higher LTV than 95%, they are most likely going to be moving down the PT route when with some further innovative thinking from other lenders, they might be able to secure a remortgage at a better rate, with the opportunity to see the value of the property rise in the years ahead, plus paying off some of the capital.
The other point here is that we’re not exactly inundated with 95% LTV products either. Until the Government intervened in this space a couple of years back with its Guarantee Scheme, so risk-averse were lenders there were but a handful of 95% LTV products post-Covid, and while this has clearly improved, there are still not enough, and there is a very strong argument to suggest lenders should be offering more products to those with less than a 5% deposit.
For example, each month in this very publication, Patrick Bamford from AmTrust/Qualis looks at the number of high LTV products available to first-time buyers, marked against having a 5% deposit on the ‘average’ UK house price as determined by Nationwide each month.
Now, what is noticeable about these figures is that, yes, they have been going up since the middle of last year – to 219 at the last count – but they still fall short of what they were prior to the big lender retrenchment of last Spring, and they fall short of what they were prior to the disastrous ‘Mini Budget’.
The other point to note is that, in amongst those 219 or so products, there are a substantial number from building societies that only lend in certain parts of the country, and there are also a sizeable number for those first-timers who have adverse credit and therefore the rates are two/three percentage points higher than the ‘best buys’.
In other words, a fairly considerable number of products won’t be relevant to the ‘mass market’, and therefore there perhaps needs to be a two-prong approach in this space.
Firstly, let’s look at improving the traditional 95% LTV product space, increasing the numbers and the lenders involved, and secondly, let’s see if Accord has the right approach in terms of offering higher LTVs, but hopefully also covering those properties that first-timers are more likely to be buying, namely apartments/flats and new-build.
There is a lot of market chatter about first-timers – we know the number purchasing in 2023, for example, was the biggest of all borrower demographics, but many still struggle to raise a deposit, let alone meet affordability criteria. The industry can continue to talk a good game or it can actually get on with levelling the playing field.
