SPECIAL FEATURE: Paul Broadhead on high LTVs
Writing a guest Blog for HML this week the BSA’s Paul Broadhead talked about why he was disappointed by the announcement of the Help to Buy mortgage guarantee scheme.
Mutual lenders continue to provide high LTV loans to creditworthy borrowers – and his thoughts are reproduced below thanks to our friends at HML.
Much talk continues in the press and around the industry about the deposit barrier facing today’s first-time buyers and homemovers.
Given that this is the case, I thought it would be worth some analysis to see how the provision of loans at 95% LTV has changed over the last 12 months, how consumer perceptions have evolved and also to examine what the government plans to do to boost lending further to creditworthy borrowers with lower deposits.
Since the launch of the Bank of England’s Funding for Lending Scheme (FLS), some commentators have raised concerns that any reduction in lenders’ funding costs would flow to borrowers who would have been able to obtain mortgages anyway, rather than helping new buyers into the market.
Analysis of data from Moneyfacts, the price comparison service, suggests that this is not the case and the number of available products at 95% LTV has increased and that much of the increased availability of these mortgages has come from mutual lenders.
The number of loans available to buyers who have a relatively small deposit and therefore require a loan equivalent to 95% or more of the property’s value has increased in the months following the start of the FLS.
In early summer last year there were about 64 such products available on the market.
This has since increased, and earlier this month there were 85 products available.
Much of this increase has come from building societies and other mutual lenders, which were recently offering 52 out of the 85 products on the market.
This data suggests that the improvements in funding conditions, much of which is likely to be due to the FLS, are having an impact on high LTV lending – as well as the mortgage market more generally – and mutual lenders are playing a key role in making this happen.
Consumer confidence in the housing market, and indeed the wider economy, has taken a real knock since the beginning of the credit crunch.
The BSA property tracker survey published in March shows that the perceived barriers to property purchase for consumers are raising a deposit; access to mortgage finance; and a lack of job security.
Each of these barriers fell slightly during March, which may indicate that confidence is increasing, albeit very slowly.
A number of BSA members that have continued to offer 95% loans have not reported a stampede of customers looking to take out these loans, so job security is a factor that still weighs on consumers’ minds.
The latest intervention from the government was the Help to Buy scheme announced in the Budget.
This scheme is in two parts; firstly, it provides an equity loan from the government to help borrowers to obtain a shared equity mortgage with a lower deposit.
This scheme from a consumer perspective looks very much like an extension of the Firstbuy scheme that was previously only available on new-build properties.
The second element of the scheme is the Help to Buy Guarantee.
Detail of this scheme is yet to be announced but it scheduled to be launched in January 2014.
I think it is disappointing that a scheme of this type is needed at all.
Mutual lenders have really stepped up to the plate in terms of providing loans to those creditworthy borrowers with smaller deposits.
If other lenders had done the same then this scheme would not have been needed.
Having said that, I fully support the government’s objective to get the housing and mortgage markets moving again.
If this scheme is to deliver on the government’s objectives, it must be as simple as possible for lenders to administer and it must provide a level playing field, enabling as many lenders that wish to participate in the scheme to do so.
Disclaimer: The views expressed in this blog are Paul Broadhead’s and do not necessarily reflect those of HML.