Will the Government scheme act as a catalyst for the return of 95% LTV lending?

With that being the case, we in the mortgage market were all keenly aware that the Government would be announcing a guarantee scheme, similar (if not exactly the same) as the one it ran under the guise of Help to Buy.

At the time of writing, further detail on the scheme is slightly short in supply, although there is a Government document here which does appear to show that it will run along the same lines as the Help to Buy guarantee scheme. The Government might well think, why fix something that isn’t broke.

There will be few within the marketplace who won’t think this is good news because, quite frankly, no mainstream lender has wanted to go near the supply of 95% LTV mortgages for the last 12 months, and prior to this announcement being made, there was no suggestion that this would change anytime soon.

We run our own regular LTV Tracker research and, last time we reviewed the supply of 95% LTV products, there were essentially five options and all of them required some sort of parental or guarantor support, and none of those five were offered by what we would call large, mainstream lenders.

That will clearly change from April when the lenders who have signed up to the scheme, will begin introducing 95% LTV product options into the market, one of which – according to the rules – must be a five-year fix.

At the moment, there are a number of unknowables around the scheme, not least the fee that lenders will have to pay to secure the guarantee which will clearly impact on the eventual rates that are offered to borrowers.

I’ve already read some adviser concerns on just how expensive the products will be, and also around the ability of borrowers – who might well have a 5% deposit – to secure these products based on affordability, credit scoring, and the like. Anecdotally I’ve heard of advisers speaking to potential clients to warn them they still might not be eligible for these products because they will not meet the income/affordability criteria. Having a deposit doesn’t necessarily translating into getting the mortgage.

That’s what we don’t know, and time will tell in that regard. However, what do we know? Well, the scheme will initially run from April this year through to December next; NS&I will administer it on behalf of the Government; and there is a Government cap on contingent liability of £3.9bn.

In terms of borrowers, they must be residential and they will be accessing repayment-only mortgages, however it will be open to all residential borrowers (not just first-time buyers), it will be available on both new-build and second-hand properties, and it will be available on loans up to £600k.

These latter points might not chime with a Government message which says the scheme has been designed to ‘support a new generation’ onto the housing ladder, although it might well argue that it needs second-steppers to move on if it’s going to free up the traditional first-time buyer supply required.

There will also, no doubt, be worries about the use of taxpayer’s money to fund this, especially when there are private mortgage insurance solutions readily available. Solutions, I might add, that are more flexible, likely to be cheaper, and could provide lenders with a much more targeted approach – for example, only used to provide high LTV mortgages to first-time buyers.

That said, I fully expect this to act the Government scheme to act as a catalyst to other lenders – who won’t be involved in the scheme – to also make a return to 95% LTV lending. For example, traditionally, many building societies have been very active in this space and we anticipate that, once product numbers rise and a more competitive market is formed, there will be a greater level of confidence in providing these mortgages to borrowers.

Overall, it’s fair to say that without Government intervention there was a slim chance of lenders returning to this space very soon. Now that the mainstream operators have this reassurance, it will hopefully allow all others to explore the options they have to deliver high LTV lending, and one suspects that others outside the scheme might well be able to offer a greater number of products that potentially shape the market far more than those reliant on a one-size fits all Government approach.