Higher LTVs held back by strict criteria
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The range of new mortgages at 90 per cent loan to value has increased significantly since the beginning of the year but brokers feel strict credit criteria and the price of these deals are hampering their take-up.
Research from Moneyfacts.co.uk, which reflects deals available both direct and through intermediaries, shows there has been a 30 per cent rise in the number of 90 per cent products available since January, up from 199 to 261 in July.
Moneyfacts.co.uk notes that, in the past month alone, 17 new 90 per cent LTV products have been introduced. Since the start of June, 13 lenders have launched 90 per cent LTV products, including Abbey for Intermediaries, Yorkshire Building Society, Kensington Mortgages, Chelsea Building Society, HSBC and Lloyds TSB Scotland.
The number of 95 per cent LTV deals has increased from 24 in January to 31 in July.
John Charcol senior technical manager Ray Boulger says the resurgence in 90 per cent deals is a sign that lenders are falling short on their targets. Moving away from the concentrated low-LTV arena is one way they can rectify this.
He says: “We are seeing a few lenders that are a bit behind on their lending targets. Essentially, they have got a few options for how they can increase their volumes. One is that they can make their existing product range more competitive but the problem is it can reduce their margins and their competitors might respond and drive margins down further.
“An alternative is to go into an area where they are not currently lending. For example, extending their maximum LTV from 85 per cent to 90 per cent. Another alternative is to bring out a really innovative product.”
The 90 per cent deals are an attempt to headline-grab and get coverage but the number of people who are approved is pretty low
Moneyfacts.co.uk spokeswoman Louise Holmes says the rising number of 90 per cent deals is a positive sign but strict lending criteria means many people cannot access them.
She says: “There has been an increase in higher loan-to-value deals in recent weeks. The competition is returning to the market but it is a case of whether people are being approved. There may be the choice there but lenders are being strict about who they lend to. However, this is great news for some first-time buyers.”
Masons Financial Planning practice principal Dean Mason says it is obvious some lenders still do not have the appetite to lend in this sector.
He says: “There are one or two lenders such as Halifax and NatWest that have an appetite to lend at 90 per cent but others, particularly Skipton Building Society and Santander, are not lending much money at that level.”
Your Mortgage Decisions director Martin Wade says: “The 90 per cent deals are an attempt to headlinegrab and get coverage but the number of people who are approved is pretty low.”
Boulger says smaller building societies offer borrowers more hope of getting a deal at a higher LTV. He says: “What is particularly good news is that once you get above the 75 per cent LTV mark, an increasing proportion of competitive products are being offered by the small and medium-sized building societies. They generally do not creditscore and will employ a human underwriter who will look at the case on its merits.”
IMF Mortgages partner Ian Marcusfield says rates have become more tiered across the LTV ranges, with the difference between a 90 per cent deal and a 75 per cent deal a lot greater than three years ago.
Moneyfacts.co.uk says the average rate on a two-year fix in Aug 2007 at 60 per cent was 6.35 per cent, compared with 3.33 per cent now, whereas at 90 per cent the rate has dropped far less - from 6.32 per cent to 5.78 per cent.
Marcusfield says: “My instinct is that lenders are all trying to get market share. The funds are starting to come through and they are releasing the reins a bit. But I am wary about the difference a 5 per cent increase in the LTV costs.
“Going back three or four years, the interest rates were pretty much level throughout the LTV ranges but now people are paying dearly for each extra 5 per cent added to the LTV. Interest rates are very tiered at the moment.”
Lloyd Financial Management director Andrew Mallett echoes Marcusfield’s concerns. He says: “When you researched for 95 per cent deals a few years ago, the deals were not much worse than the 90 per cent deals and these in turn were not vastly inferior to 75 per cent deals. You did not pay that much of a premium.”
Mason says the costs of higher-LTV deals are putting people off and that clients would rather save for longer to get a better rate.
He says: “Base rate was a lot higher and the margins were a lot smaller a few years ago, so the public perception is that paying that much for these deals is a bit of a rip-off.
“The pricing definitely puts people off. Every customer that I speak to who is saving for a deposit and looking to save 10 per cent normally comes back and says they will try to save a bit more.”
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