While 95% LTV product choice has improved, there is a long way to go

And the further good news is that lenders – albeit those not using the scheme but utilising private mortgage insurance or funding the risk on their balance sheet – have already begun launching 95% LTV products to market.

Bank of Ireland, Skipton Building Society, Accord, and a number of others launched new offerings in the space of a few days, and there is an anticipation that more will follow.

Certainly, the lenders who use our private mortgage insurance product are looking at their options in this space and it would be surprising not to see, for example, more building societies offering high LTV products to market.

However, that being the case, we have a long way to go until we reach any sort of pre-Covid ‘normality’. During the 12 months leading up to last March’s first lockdown we had begun to see a slight increase in, for example, 95% LTV products but once that event hit, the drop-off was dramatic.

Indeed, prior to the Government’s Budget announcement last month, there were barely five 95% LTV products available, and all required some sort of parental support or guarantor to secure them. So, what difference have we seen in the last month?

Well, at the time of writing there has clearly been an improvement. Based on a first-time buyer purchasing a property at the average UK house price of £256,460 (Halifax February 2021 House Price Index) and putting down a 5% deposit, there was a choice of 32 95% LTV products.

Half of those were five-year deals, while seven were for two-year terms, and it looks likely that five-year offerings might well dominate in this space from now on. As you know, the Government has insisted that those using its guarantee scheme must offer at least one five-year fixed-rate product, and I suspect lenders will want to ensure they can keep their low-deposit borrowers on the books for as long as possible.

32 products is certainly an improvement on the five prior to the Budget, but lest we forget in February last year, borrowers had over 100 95% LTV products to choose from, over 40 of which were two-year options.

And, while the product choice has improved, there is a long way to go. For instance, moving up the scale for those first-time buyers able to put down bigger deposits, we find product choice rising rapidly. A 10% deposit means you can access 238 products, 15% 511 products, 20% 850 products and 25% gives 1,209 options.

It’s a substantial difference especially when most first-time buyers’ biggest obstacle is saving up for a deposit and the amount that would be required. At that Halifax average house price of £256,460, you would need over £65k to access the 75% LTV deals.

I’ve no doubt that potentially by the time you read this, the market might well have seen another influx of 95% LTV product choice. Those lenders who have already committed to using the Government’s Guarantee Scheme are scheduled to start launching product through April, and my understanding is other lenders – who are not using that scheme – are also planning launches, possibly waiting to see what the guarantee lenders bring to market.

Pricing will (as always) be important. Five-year rates launched recently at 95% LTV have tended to be around the 4% rate, and given the fee involved for the Government guarantee it will be interesting to see whether those lenders utilising it will be able to match these rates.

To my mind this is why we’ll undoubtedly see more lenders in this space not using the Government guarantee, opting for private mortgage insurance such as we offer or going it alone. The Government’s scheme is pretty rigid, and quite costly, and there could be more flexible and cost-efficient options available that can help keep rates competitive.

The good news is that we’re going in the right direction, and political intervention has already worked. One questions whether we would have any functioning 95% LTV market without it and whether advisers would have any such low-deposit options for clients.

Let’s hope that this is a tide that has turned and that we can get back to a replenished market that will make a huge difference, particularly to those seeking to get on the property ladder for the first time.