Bob Hunt is chief executive of Paradigm Mortgage Services
Recent market and mortgage product developments seem to suggest we are taking very small steps back to a marketplace where all deposit and equity levels can (theoretically) find finance. By this I mean that 95% LTV products appear to be available again, however, I think it could be some time before we have a lender brave (or perhaps foolish) enough to offer finance to those with no deposit or equity at all.
That said, it is a welcome first move to see 90%-95% products back in the market given that it is widely believed to be deposit levels, rather than affordability, which are holding some potential purchasers back from getting on to the ladder. Research from the Halifax recently suggested it was now £100 per month cheaper to buy an average three-bedroom property rather than rent, putting this down to a combination of falling house prices and low interest rates. The point should however be made that getting to where a potential buyer would have the available cash for a deposit, and all the other costs of purchasing, is a completely different kettle of fish.
Deposit requirements for mortgage products have declined steadily over the last year, and to remind ourselves we are not too far on from a mortgage marketplace where 80% LTV or thereabouts was the absolute maximum. It is therefore encouraging, and dare I say it vital to aid recovery, to see lenders moving up the risk curve. We all know that capital requirements for lending on such LTVs are heavy to say the least so any movement in this area can only be a good thing.
Having said this, there is a significant difference between marketing and advertising available 95% LTV products and actually lending to borrowers. Skipton Building Society recently launched a 95% product and we’re told - were immediately inundated with interest and applications – quelle surprise! The mutual has now revealed it is only accepting around 25% of all applications for this direct-only product and it is clear that many individuals who believe they have found the mortgage finance they need will be sorely disappointed.
No-one could disagree with Skipton’s approach; while 25% seems particularly low, given the scant degree of competition it has to act and lend both responsibly and commercially. What the market could do with of course is more competition however I suspect there will not be a plethora of similar products anytime soon.
What we are starting to see more of though is the offering of high LTV products to those who have other accounts with a bank or building society; the number of mortgage products available exclusively for current account customers has risen already and Nationwide has thrown an interesting curve ball with its new launch - offering 95% LTV mortgages for those who save regular amounts with it. The need for retail deposits is still particularly high (given there are few alternative sources of mortgage funding available) and this type of product is the latest attempt to solve that particular conundrum.
Of course, there is no guarantee that anyone saving with Nationwide over a regular period of time – between six months and three years is the stipulation – will be able to get their hands on a 95% mortgage product. The rate offered on the savings account is certainly not the most attractive available and one might suggest that those who are potentially thinking of taking out this (again direct) offering check to see if they would be eligible for the mortgage in the first place. There is little point saving in such an account if you have no chance of being accepted for the mortgage; best to save elsewhere and pick up the top rates available. Tax-free in an ISA one might also suggest.
This type of cross-pollination of products is becoming more prevalent in the UK; on the continent it is much more common where individuals will have many more financial products with one bank or provider. UK banks have understood this for some time, however with all the other mortgage market issues they have had to contend with they are only now beginning to offer incentives across their range of products in order to gain client loyalty and multiple product links. The point for mortgage brokers and advisers to address with clients is whether these products are the best or most suitable in the marketplace anyway; if they are not and the client is not even eligible for a 95% LTV product, for example, then there is little point them signing up for these accounts.
Given that most of these product offers are only available direct we would urge advisers to keep in constant contact, particularly with potential first-time clients, who may be viewing the marketing and thinking it looks like a good deal. I would also call on lenders to resurrect past discussions about how best to market joint or multiple product propositions. With access to far more information, and with their clients’ best interests at heart, advisers should be able to save these individuals a wasted journey when it comes to the wrong product-related mortgage offers, plus they may well be able to help them save a pound or two and/or secure a better current/savings account deal.
It’s a common message but constant contact is the name of the game here. Lose the communication battle and you could well lose the client.
