As you might have expected, mortgage affordability figures large in the FCA’s recently-published Discussion Paper, and will clearly be of interest to advisers and lenders servicing first-time buyers, as well as the first-time buyers themselves. Might we see a significant change to the stress tests in place, that will ultimately allow more would-be homeowners to secure the levels of loans they require?
There are a number of suggestions about how the FCA might go about this, including removing the current five-year fixed-term, using rental payments, and changing the 1% minimum stress margin – all good and no doubt potential ways and means by which lenders could support lower income buyers into a first home.
Interestingly, and within the same context, there is also a lot written about high LTV borrowers, and whether from an advice perspective, their circumstances might well require an ‘enhanced advice’ approach from advisers.
I have to be honest, I don’t quite get the logic of this, and am struggling to think of how a high LTV borrower might present a somehow unique set of circumstances that couldn’t be fulfilled by an adviser in the way they already look after such clients.
As a number of commentators have already pointed out, high LTV borrowers are what we might deem ‘bread and butter’ for advisers, and while many will be first-time buyers who of course will have knowledge gaps, a perhaps limited understanding of the process, etc, advisers’ daily job is to work through this with such clients.
I remain to be convinced by the argument for ‘enhanced advice’ across different customer groups, be that high LTV, or those with adverse credit, or indeed, later life lending, which of course currently requires an separate qualification and separate authorisation, for equity release at least.
Far better, I would think to raise the standards, the sector access, the qualifications, and the authorisation of all advisers to ensure they can cover off all types of lending (and protection) needs – from cradle to grave, if you like – rather than go through a process which actively takes advisers away from certain client types.
This would be truly holistic mortgage advice right across the piece, and mean all customers have access to all product and protection options and solutions via one adviser, whether they are a first-time buyer with a low deposit, or someone in their 70s looking to release equity from their property to possible help their children or grandchildren get on the ladder. Increasingly, such wants and needs are related so it would make sense for advisers to be able to advise in all these areas.
The reason, of course, that many are still relying on family support, is that raising a deposit remains one of the key barriers for all would-be new purchasers to overcome.
Even with more lenders potentially taking recent rental payments into account in order to gauge affordability, there is still going to be a requirement for a deposit – one that is desirable for both lenders in terms of borrowers having ‘skin in the game’, and of course also for borrowers, in terms of having equity from the start and of course, the more deposit they have, the cheaper their mortgage costs are going to be.
Each month, I review the number of high LTV mortgage products available based on the monthly average Nationwide house price. In June the average price was down 0.8% on May at £271,619, which is of course interesting in itself, but should be read in the context that they are seasonally adjusted. Nationwide put the softening in annual house price growth – down to 2.1% in June from 3.5% in May – due to a dip in demand post-increase in stamp duty in April.
However, it also anticipates demand picking up through the rest of the summer – indeed, we’ve already seen some evidence of this in recent weeks – and you might believe this will translate into house price inflation moving upwards again through the rest of 2025.
Back to high LTV mortgage choice. Last month, for the first time, I began to look at the availability of 100% LTV mortgages as there was a clear increase in activity here, and indeed a greater dialogue around their availability with a few new entrants to the marketplace over the last couple of months.
Using that average Nationwide house price figure, this month we have seen a slight increase in 100% LTV mortgage availability – up from 17 to 19. This is essentially because Bath Building Society have entered the fray here with two products, and it would not be unexpected if more building societies in particular are looking at their offering in this area, particularly within a geographical/local context.
In terms of 95% LTV mortgages, based off a 5% deposit of £13,581, we have also seen a slight increase in product availability this month, up from 298 to 304, comprised of 274 fixes and 30 tracker, variable or discount offerings.
There has been some product price shifting across a number of areas, for instance, in the top two-year fixes best buys, Newbury now have a 4.54% product, while Lloyds offer a 4.72% rate and Leeds 4.78%. For five-year fixes, Lloyds offer a 4.68% deal, the Monmouthshire has a 4.75%, while three lenders – Virgin Money/Lloyds again/Scottish BS – offer a 4.79% deal.
On the variable side, Newbury Building Society’s three-year discount at 4.19% remains the standout, plus it also has a further 4.55% variation, while the Furness and the Scottish BS offer a two-year discount at 4.99%.
Overall, and certainly in comparison to a year ago, pricing for higher LTV mortgages continues to shift downwards, albeit not at the pace we have seen for lower LTV options. That is perhaps to be expected, but there’s also a strong argument for more lenders to get involved in this space, particularly if they utilise the attractive options available from private mortgage insurers to mitigate the risk.
Greater levels of product choice are always welcome, and coupled with any future movement on affordability by the regulator, will be crucial in terms of helping more people turn the dream of home-ownership into a reality.
