Higher LTVs are not the answer to HTB

Michael Lloyd

September 19, 2019

Jeremy Duncombe Accord first-time buyers

Offering mortgages at higher loan-to-values is not the simple solution to replacing the Help to Buy scheme, Jeremy Duncombe, director of intermediary distribution at Accord, has claimed. 

His comments follow PMS Mortgage Club and Sesame Network last week urging lenders to offer higher LTV mortgages for new builds to replace the Help to Buy scheme.

In 2021 the scheme is set to be restricted to first-time buyers and in 2023 it is set to end completely.

Accord lends up to 90% LTV on new build flats and houses.

Duncombe (pictured) said: “There’s certainly desire from most lenders that they would like to do more 95% lending, but it’s not as simple as saying ‘let’s do more 95% lending instead of Help to Buy’.

“There are challenges and part of that is down to things like regulatory controls and capital you have to put aside to lend at 95%.

“At 95% you have to put more capital aside, therefore it’s more expensive to originate and rates are more expensive.

“Even if you have the appetite from the customer’s point of view the difference in price from 90% to 95% can be quite significant and that’s because the cost to the lender which is passed on.

“The customer has to choose, can they find another 5% deposit and would they be better off taking 90% or 95% lending.

“I don’t think it’s as simple as saying let’s replace Help to Buy with 95% lending. There’s a capital position for lenders when they have to put that aside. There’s a regulatory position and thirdly an affordability issue.”

Duncombe said one reason why Help to Buy has been so successful is that it is an affordable way to buy a property.

He added: “The cost of a 95% LTV mortgage is a lot higher. The chances of a customer fitting affordability rules then make it more unlikely they’ll be able to qualify. It’s not as simple as saying let’s do 95% instead. There are lots of other challenges.”

He said that one possible change that would help first-time buyers get onto the property ladder is changing the stress test and affordability rules.

Duncombe cited that lenders have to currently stress at 7% interest rate which made sense at the time it was introduced but now with the base rate low at 0.75% and predictions pointing to it remaining low, now could be a good time to change it.

Duncombe added: “I think as an industry we need to find various ways to overcome the Help to Buy scheme ending, some of which relies on regulatory change.

“If we could stress at a different rate you could look at helping more people. You don’t want to make the mortgage unaffordable or lend to people who shouldn’t be borrowing.

“It’s a very important balance but if it’s found, you could help more people.”

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