The doors of BOMAD will be staying open for a long time to come

Arguably, the Government’s Guarantee Scheme was designed to ease some of the parental pressure to fund deposits but, of course, what it will actually mean – given the level of house prices – is that parents will probably be called upon like never before.

There’s been a lot of talk about the ‘race for space’ but what we’re likely to see increasingly is the unrhyming ‘rush to BOMAD’. Of course, buying an averagely-priced £250k UK house will require a £12.5k deposit for a 95% LTV mortgage and, given the eye-watering deposit levels that are needed in some parts of the country that might seem reasonable and perhaps do-able.

However, there are a number of constituent parts at play here, any number of barriers to jump over, and still the potential to need significant parental support to get any transaction over the line.

Firstly, is that deposit barrier – if the borrower doesn’t have the full amount, where will they go to get it? Friends and family. Secondly, it’s not just a case of funding a deposit and that’s it – there are numerous costs within the purchase process that need to be met. Who might help with those?

Thirdly, the number of 95% LTV products has risen, but we’re not awash with them, plus they’re only ever going to make up a small percentage of any one lender’s activity. Expect to see a lot of dipping in and out at the drop of a hat. Fourthly, are the obvious barriers in terms of the affordability and income criteria obstacles to overcome.

And finally, we turn to what might well be one of the major reasons why BOMAD will still have to fund billions upon billions of deposits each and every year, and that is the pricing of the 95% LTV mortgages.

As we write, Nationwide has just launched its new range of 95% LTV products – not using the Government’s scheme which might well beg the question why lenders couldn’t have done this prior to any State intervention – and theirs seem to be at the more competitive edge, starting at 3.49%.

However, the reality of the 95% LTV market is that, give or take a couple of outliers, most of the products are around the 4% mark. Which for the first-time buyer who is desperate to get into their first property, thinks they can scrape their deposit and costs together, and has also heard there are big stamp duty savings to be had – despite the fact that they’ll continue to get these after the June and September deadlines come to an end anyway – might seem like a good rate.

But it leaves us wondering how, in a marketplace where Bank Base Rate is 0.1%, do we have 95% LTV rates of 4%? A decade ago, in the immediate aftermath of the Credit Crunch, when the mortgage market was supposed to be on its knees, you could get an 85% LTV for between 4-5%. So, how come – even in a pandemic situation – lenders (many of whom are not in the Government scheme or paying the guarantee fees) are unwilling to be any more competitive?

Perhaps lenders still feel disconnected from the high LTV market. It’s unlikely they have any serious urge to be involved here, but the Government has flexed its muscle, a number of banks have acquiesced, a mini-market has been created, and those whose core message is supposed to be putting customers in homes, have had to make a small play.

We’re hearing from a number of sources that certain estate agents are suggesting to high LTV customers to hang on and wait for the competition-fuelled rate cuts in this space. That message might not be the one to grab onto – house prices continue to go up and 95% LTV pricing is unlikely to drop much lower, if at all.

To sum up, if there is any chance that a borrower can get a bigger deposit together then the economic advantages and monthly mortgage cost savings are going to be worth it, both now and certainly in the future. For those reasons, and many others, the doors of BOMAD will be staying open for a long time to come.