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Lending must return to ‘normal’ before 95% LTVs return

Jake Carter

December 11, 2020

Lending must return to ‘normal’ trading before 95% LTV products begin to be rolled out, according to Mike Brown, director of Crystal Clear Financial Services.

Prime Minister Boris Johnson has announced plans to turn Generation Rent into Generation Buy through encouraging lenders to resume lending at 95% LTV.

Under Johnson’s proposal, banks would no longer be required to ask applicants about the finer details of their earnings and outgoings.

However whilst Brown believes that the aspiration for Generation Buy is a good idea, he detailed that it is something which needs to be carefully worked through.

He said: “If something like this were to be rolled out, the impact on brokers at present would be too much, demand would outstrip supply, and significant amounts of time would be spent working through options with clients.

“Overall for the market, it would be too little equity at a time when the economy and housing markets are fragile, so overall I would say a good idea, just not now!”

Jeremy Duncombe, director of intermediary distribution at Accord Mortgages, takes a similar perspective to Brown.

He outlined that while support for first-time buyers is essential for the market, there is too much uncertainty around what the government’s ‘Generation Buy’ initiative will mean for homebuyers, brokers and lenders.

Rising house prices combined with the end of stamp duty is likely to see an impact on the volume of transactions, according to Duncombe.

He went on to detail that the current regulatory stress testing requirements mean that for many borrowers affordability calculations do not add up.

Duncombe said: “Even if buyers are able to find a house and get their finances in order, securing a mortgage in the current climate is so much more complex.

“Criteria has changed and although we may see some restrictions reduced as we enter 2021, it is undoubtedly more challenging for applicants.

“For the market to recover properly there needs to be an increase of higher LTV products available. More choice can only be beneficial for everyone.”

Sarah Tucker, founder and managing director of The Mortgage Mum, believes that Johnson’s scheme is a positive move by the government.

She said: “There are up to two million people who can afford mortgage repayments and cannot get a mortgage!

“During lockdown we saw so many disheartened first-time buyers, who had been eagerly saving towards buying their first home, and who felt crushed when the 95% mortgages were taken away, closely followed by most of the 90% offering.”

However, Tucker outlined that the idea of lenders easing the rules around affordability makes her feel uneasy.

She pointed to the financial crisis, and explained that she believes affordability and stress tests are necessary.

Tucker said: “I do not think we should look to loosen the affordability rules, but I think some 95% LTV mortgages would be a fantastic thing to help to get people on the property ladder.”


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