The return of the 100% LTV mortgage

Just recently I read a piece with a headline about the return of 100% LTV mortgages, which on the face of it wasn’t really the case, and it would be interesting to me to know exactly how the mortgage regulators might feel about any move back in this direction.

In my view, if anything approaching a 100% LTV product was in the offing – and while we're at it, why not a 98% LTV product, why do we have to move up in five percentage point bands - there would not only be a lot of noise and scrutiny from the regulators, but also a belief that this would be the ultimate ‘niche’ product, with a lot of obstacles to overcome for lender, adviser and borrower.

That being the case, it makes the 95% LTV product market even more important and while, between March and April, we saw a dip in these product numbers, I had an inkling it would be a temporary situation, particularly as we moved into Spring and are now more than a third of the way through the year.

Given that, I suspected lenders might be able to have a much clearer view of how 2023 was going for them, whether they might be behind their targets, how they might be able to secure greater levels of business volume, and specifically, how they might be able to do this in the purchase sector.

It already seems fairly apparent that purchasing – as many predicted – has not been a major driver of business in the early part of the year, and I suspect lenders will be increasingly keen to grab the necessary volume where it’s available, and this might specifically be with first-time buyers and those who need higher LTV mortgages.

Lo and behold, we have seen a fairly sizeable jump in 95% LTV product numbers between April and May. As I hope you know, each month, I use the latest Nationwide average house price figure, and look at the product numbers and rates for a potential first-time buyer able to put down a 5% deposit in the current environment.

This month is interesting on any number of fronts. Starting with the latest Nationwide house price index, we’ve seen a fairly robust month-on-month increase after a number of months when the average price had been falling.

The latest figure is £260,441, which is up 0.5% on the previous month, and means the average fall in prices over the year has moved from -3.1% to -2.7%. That means a first-timer buyer wanting to put down a 5% deposit would need to find just over £13k in order to do so.

As I write today, that would open up 151 95% LTV products in the marketplace, an increase from 135 in April, with the split being 123 fixed-rate options and 28 variable/discount/trackers.

It is something of an up and down product number ‘trend’ at present. In February there were 135 products available, in March this had gone up to 147, in April dipped back down to 135 again, and now we are up over the 150 mark.

My own feeling is that, as the year progresses, more lenders will be looking at the higher LTV product sectors as a means to bring in more business, and this will also start to reflect in terms of the rates on offer, which in some parts of the 95% LTV product space have already been falling.

That said, we have a high degree of stability in terms of ‘best buys’ this month. In the discount/variable space, we have a new leading product – albeit only available north of the border – with the Scottish Building Society offering a two-year discount at 4.54. Vernon remain close to the top with its 4.65% lifetime discount, while Cumberland Building Society also have a 4.7% two-year discount.

Scottish Building Society lead on the fixes side as well, with a 4.54% five-year fix, again only available in Scotland, while Vernon have a five-year fix at 4.6% and Skipton have a 4.75% fix, only available in England.

Interestingly, we’ve seen some price pressure being brought to bear in the two-year fixed-rate product space. The Monmouthshire’s 4.9% two-year fix remains, but Hanley Economic Building Society now have a 5.09% deal, and the Halifax have a 5.29% offering. Last month the closest product to the Monmouthshire deal was priced at 5.3% so you can see prices getting keener here.

Overall, that is good news, particularly for first-time buyers who like fixes but sometimes don’t want to commit to a five-year product because they envisage their needs and circumstances changing over a shorter time period. That being said, the better fixed-rates are at longer-terms and this has much to do with five/seven/10-year swap rates all currently tracking below 4%.

Interestingly, we have another MPC meeting and announcement on the 11th May, and all signs appear to be pointing to another hike in Bank Base Rate especially given that inflation (as I write) remains in double figures.

What we can however say is that BBR appears not to be impacting negatively on product rates in the 95% LTV bracket. As can been seen above, they have stayed pretty stable, with some cuts over the month, and I anticipate more will come as lenders seek to secure the business they need in order to meet their 2023 lending targets.

We should not underestimate how important this is, and even if BBR is increased, I expect to see a steady rate creep in this very important part of the mortgage market.