Atelier: Success of 95% mortgage scheme under threat from affordability tests
Atelier Capital Partners has warned that the success of the 95% loan-to-value (LTV) Mortgage Guarantee Scheme is threatened by current affordability tests.
The report, ‘First time buying affordability: The snakes and ladders of the housing ladder’ found that first-time buyers are increasingly drawn from wealthier sections of society, while families on more modest incomes face being shut out completely.
The data also found that there are 30% fewer first-time buyers today than at the peak in the 1980s; however, there are 10% more adults aged 25 to 34 – the group most likely to want to buy for the first time – than there were at the time of the global financial crisis.
Contrary to the belief that first-time buyers are skewing older, the average age of a first-time buyer was found to be 29, a number which has barely changed in two decades, while housing equity of around £1tn has been accrued by older borrowers.
The Mortgage Guarantee Scheme provides guarantees to participating high street lenders, including Barclays, HSBC, Lloyds, NatWest, Santander and Virgin Money, to encourage them to lend to those buying a home worth up to £600,000.
However, the report found that average deposits have increased 24%, to £60,000, 0ver the past year, due to rising house prices.
The report also noted that, with house price inflation outstripping pay rises, many aspiring buyers are also struggling with lenders’ affordability criteria, and that in the wake of the Global Financial Crisis, well-intentioned regulation from the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) has squeezed affordability.
Atelier revealed that while 95% LTV mortgages have become more readily available through the Mortgage Guarantee Scheme, they often come with strict credit assessments and are relatively costly.
Even if the pricing and availability of such mortgages reverts to pre-COVID levels, most would-be first-time buyers will either not qualify for 95% LTV loans, or will choose to save for a larger deposit.
The report, written by Bob Pannell, a former chief economist of the Council of Mortgage Lenders, was commissioned by the specialist property lender Atelier Capital Partners.
Chris Gardner, chief operating officer at Atelier Capital Partners, said: “What was interesting about the report is that it told me first-time buyers are not very secure in the market.
“There is a urban myth that first-time buyers are getting older and older, when the reality is that they have stayed the same age now for years.
“Another myth is that young people do not want to buy, this is completely inaccurate, I believe they do want to buy, however, have no option but to rent due to affordability limitations.
“Government incentives such as the Mortgage Guarantee Scheme simply move the problem, not fix it.
“Due to the scheme raising a deposit has become easier, but as a direct result, high prices have increased and therefore affordability is now unachievable for many.
“Mortgage lenders allow for 15% of their loan book to offer mortgages at over the standard 4.5x income multiplier, but this is reserved for lawyers, doctors and other such roles, I believe this should be extended to include jobs such as policeman and firefighter, positions which are lower in pay, but high in security.
“The research shows that there is space for targeted initiatives, focusing on helping those most in need.”