Reading the signals
Bob Hunt is chief executive of Paradigm Mortgage Services
The shifting sands of the mortgage market are starting to show some progress in any number of product areas but for first-time buyers, and those borrowers who require high loan-to-value (LTV) mortgages, the move back to a level playing field might take rather more time.
That’s because it is at these higher LTV levels where we’ve seen considerable COVID-19-related pullback and, gazing into my crystal ball, it’s unlikely that we’ll see lenders rushing back into this part of the market, at least not in the short-term.
If you wanted an understanding of just how severely impacted 95% LTV mortgage choice has been by the pandemic, then the recent Moneyfacts data reveals this with only six two-year fixed-rate products available at the start of June, compared to only 11 in May. Five-year fixes at 95% LTV do not fare much better, with nine products available now, compared to 11 last month.
And I wish there was better news at 90% – as advisers will know only too well, we’ve seen a number of lenders pulling out over the last week or so, as a nervousness fueled by concern around house price levels and not wanting to be inundated with applications hits home.
Lenders who initially jumped back in at that higher LTV level have now been forced back out, and it looks like those left – and those willing to temporarily return to a 90% level – are going to be taking it cautiously with, as we’ve seen from the Coventry recently, opportunities to secure funds lasting only a matter of days.
So, what does this mean for advisers and those clients, like first-time buyers, who are more likely to require lower deposit/equity products? Well, it clearly makes things much harder and I’ve been talking to a number of lenders about the way they interact with this part of the market, because the lender community may well have to work a lot harder in terms of how it communicates with advisers in order that they might communicate effectively with clients.
I suspect that many advisers are urging clients without, at least, a 10% deposit to wait, and while there is still some availability at 5% LTV levels, the pricing on this has been hiked considerably over the past week or so.
Plus if we now working through a situation where high LTV lending availability is only going to be available for very short periods of time and potentially pulled at very short notice, then I suspect this will do nothing for adviser-client relationships, if they’re constantly having to give them bad news that funding has not been secured.
COVID-19 has certainly shifted the environment for first-timers who back in January/February this year might well have been thinking they were on the brink of purchasing a first home with a 5% deposit, but will now have to find potentially more than double the amount, and pay far higher rates, in order to make that goal a reality.
For advisers this might present a challenging conversation and it’s certainly going to be a balancing act, especially when those very same clients might be looking at direct offers which come in at a higher LTV, and potentially a lower rate.
Nationwide Building Society, for example, currently offers a 95% LTV product direct, which is not currently available to advisers.
Overall, the provision of higher LTV products is likely to be a bell weather for the entire mortgage market, because increases in product options and lender appetite, are likely to signal a move towards that much longed-for pre-virus ‘normality’. It is however highly unlikely that this will return anytime soon, or indeed, that the market can resemble what it was prior to the pandemic.
Much has changed, and much will continue to change. Of that there can be no doubt, and it will be our ability to adapt and to help our clients adapt, that is likely to mean the difference to success and failure.