Why the mortgage market is no longer a numbers game

For instance, back pre-Budget this year, first-time buyers with only a 5% deposit looking at their mortgage options would have ‘officially’ seen about half a dozen products available to them. Certainly, not something to write home about but better than nothing.

However, the truth of those numbers was rather different because every single one required some sort of parental support/guarantee in order for the potential borrower to access them. Without it, they would not be getting a mortgage – five/six mortgage choices become zero.

I’m very pleased to say that since the Government’s launch of its Guarantee scheme, that choice for 95% LTV borrowers has grown from six to, according to Moneyfacts this week, 112. In fact it’s gone up to that number from 34 in April and the vast majority do not require any sort of parental help.

Good news but, where six became none, what number might 112 turn into, depending on what type of borrower you are, your financial situation and circumstances, the type of mortgage you want and over what term?

Let’s delve a little deeper into that. This month’s Halifax House Price Index revealed that the average property price now stands at £258,204 and, while you might think that first-timers would generally be purchasing their first home below this level, the fact of the matter is that in 2020, the average price paid by a first-timer was almost spot on this amount, at just over £256k.

So, the latest Halifax average house price seems like a reasonable point to review the product options available for first-time buyers. Buying a home at just over £258k requires a 5% deposit of close to £13k, a 10% deposit of just over £25.8k, and a 25% deposit of £64.5k.

Putting aside just how difficult saving for a deposit is, let alone one of close to £65k, let’s see what product options are available. Using an online mortgage best buy calculator, we put in those numbers and found, those with a 5% deposit had access to 76 products (24 of which were two-year deals and 40 five-year); a 10% deposit gets you 280 products (126 two-year/114 five-year); and a 25% deposit borrower can access 1,228 products (552 two-year/478 five-year).

So, while we’ve seen a significant jump in the number of 95% LTV mortgage product options available, the truth of the matter is that they are just 25% of what can be found at 90% LTV, and a very small 6% of what is available at 75% LTV. That’s still a big difference.

However, let’s focus on the positive here, because as mentioned, last month there were just 34 95% LTV products available, so to get to 112 is close to a 70% jump in four weeks is clearly good progress.

Lenders who agreed to take part in the Government guarantee scheme have been starting to make their moves back into this space but not all have done so yet. Plus, there are some very notable mainstream, larger lenders who are going to launch 95% LTV products, but have no plans to take part in the Government scheme, and there are others who are using the more flexible private mortgage insurance schemes/products to do the same job.

That being the case, where might we be in a month’s time – over 200, or close to it? Again, that would be an impressive jump from those five or six which were available pre-Budget, however advisers will be vital here in working with first-timers who might think they can access all products, when the reality will be somewhat different.

And, of course, one of the biggest problems remaining is being able to save for that deposit, whatever size it might be. Add in the fact that affordability and suitability criteria can also be stringent for some would-be borrowers, and the market for first-time buyers might not be the land of milk and honey that some could be led to believe. A healthy dose of realism is necessary particularly for those under the impression that the Government scheme has produced product number miracles. It hasn’t – at least not yet.

Improvement has been made, and the catalyst has been delivered by the Government, but we should not think that the job is anywhere near done. Lenders might be looking at the Government scheme and ultimately deciding it is not for them, opting to take the risk on the balance sheet, or use the very experienced and available, private mortgage insurance alternative.

In that regard, we do have an environment in place to not only get the product numbers up, but keep the pricing competitive, and get more people into their first homes with a 5% deposit. These are just the first steps on a much longer journey.