Where would we be without the 95% LTV Government guarantee scheme?

One can’t help but wonder where we would be without that Government guarantee scheme? How odd might it be, right now, to be looking at a mortgage market which was offering sub-1% five-year fixes to borrowers who had 40% deposit/equity, but not have anything more than a handful of products for those with 5%?

Perhaps we would not have been in that situation? Perhaps a number of lenders would have recognised that, even without Government backing, there was a market to be targeted and they could use private mortgage insurance as a risk mitigant or they could simply place that risk on their balance sheet?

A number of commentators have suggested the 95% LTV mortgage market was likely to have come back, in some way, shape or form, anyway, but I’m not so certain we’d be talking about some kind of renaissance in this type of lending without that Government scheme.

Indeed, looking at the numbers, I don’t think we can say it’s a renaissance or resurgence just yet anyway. Product numbers have undoubtedly improved considerably over the past five months but carry out a little digging and you’ll see they are still some way short of what was the market norm back prior to the pandemic.

Using the latest Halifax average UK house price of £261,221 and for first-timers putting down a 5% deposit, we (at the time of writing) have 171 products available. A huge improvement on the handful available at the start of the year – which all required parental support – but still some way shy of the 273 products which were still available in March 2020, just days before the first lockdown was introduced.

And while the rates on offer to 95% LTV borrowers have undoubtedly shifted downwards in light of the greater levels of competition – you can get a two-year discount for 2.39%, a two-year fix at 2.95% and a five-year fix at 3.18% - they are still somewhat shy of what can be accessed with just 5% more.

Looking at the same house price, with a 10% deposit, first-timers can access 407 products – a two-year discount is available at 2.1%, a two-year fix at 2.13%, and a five-year fix at 2.73%.

Of course, rate is not everything in this space and product fees would need to be taking into account, but you can see that there is far greater choice for 90% LTV borrowers and we still don’t have parity in terms of lenders active in both 90% and 95% LTV product spaces.

So, while it’s been heartening to see greater product choice, there is still more to be done in order to provide low-deposit borrowers with a similar level of choice to those of their higher-deposit counterparts. Indeed, when we get back to some sort of pre-pandemic product number parity, we might well be able to say that the industry has truly grasped the nettle and responded as it should.

In the meantime, it’s also important to plan for a future when ‘State aid’ is not required to either act as a catalyst for high LTV mortgages, or to keep it going. The Government scheme is – in the grand scheme of things – not here for a very long time and, without putting down its huge influence, it would be a positive to see more and more lenders coming to market without needing to use it.

After all, as mentioned, there are more flexible and cheaper private options available, if they need that insurance (as many lenders do) in order to feel confident in producing and developing their high LTV offering. We need this market to be sustainable for both the short- and long-term, otherwise the hopes of a new generation of potential homebuyers are going to be set back time and time again.