View more on these topics

95% deals are good news for consumers

I am sometimes amazed how polarised industry views can be on apparently simple subjects. Online comments seem to be posted with a fanatical fervour decrying opposing arguments.

I was personally delighted to see there has been a recent increase in the number of high loan-to-value products. In the past couple of weeks, Skipton and Nationwide have both launched 95 per cent LTVs.

The Nationwide product is slightly more complex as it is linked to a savings account that must run for at least six months to qualify and it also offers a cashback depending on how much is saved. Borrowers will need to balance the value of the cashback against the interest rates that will be charged by Nationwide compared with competing products.

It would be fascinating to know how many borrowers who apply for 95 per cent loans are actually given them. Skipton suggests that as few as one in four applicants are successful. High LTV products allow first-time buyers who do not have parents with deep pockets to get a foothold in the property market. These borrowers are not buying in anticipation of making a short-term gain but are simply trying to purchase their first home.

However, many people out there, including some national press journalists, accuse lenders providing these high LTVs of giving borrowers instant negative equity kits. With house prices edging their way downwards, it does not take long for a borrower’s meager 5 per cent equity to completely disappear. Some have suggested lenders are luring innocent borrowers into the market and giving them a huge debt secured against a depreciating asset. I could understand the argument if it was an investment that people were buying (Why buy now when you can buy it next year for less?) but I think a home should not be light as other investments you make.

There is also the argument that house prices are edging lower and, with a growing population, demographics suggests the number of households will increase. With the miserly rate of new homes being built, the demand for property will continue to outstrip the supply, pushing house prices up in the medium and long term.

Those who oppose high LTV mortgages often suggest we are going back to the mad days of five years ago when borrowers could borrow more than the value of the property. Despite LTVs increasing marginally, I think those days are a long way away, probably a decade or more. Now nearly all borrowing in excess of 75 per cent needs to be done on a repayment basis, so the loan is being repaid over time. I accept that very little capital is repaid in the early years of a repayment mortgage but borrowers can make lump-sum reductions if they want to speed things up.

Even if prices fall, borrowers will continue to make their mortgage payments as long as they have a job. Provided high LTV loans are sensibly advised, underwritten and purchased, they have a vital role to play in the current market.

Jonathan Cornell is head of communications at First Action Finance

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Lenders trying to steal a march on the opposition with a .25% rate advantage isn’t the problem – it’s still the lack of a deposit and the ever tightening credit score and rule changes which is stifling the market place. I’ve had two residential mortgage apllications declined by lenders this week – case 1 had a lenders affordability check suggesting potential borrowing @ £277K when they want 85% of £198,500 but they have failed to get enough points on credit score – it was a straight decline with no appea so the trasnaction chain has now collapsed and case 2 was a remortgage with additional borrowing at 77% loan to value which was declined due to a £4.- late payment on a catalogue account again with no appeal. Until these sorts of issues are resolved lenders can take their tracker deals back to pre-credit crunch days of .5% over base and they still won’t find clients able to take on borrowing! It’s not a lack of will to borrow it’s regulator enforced ruke changes which is stopping them form doing so!

  2. There are two strands to this, as I see it. Firstly, the FSA have demonstrated a level of ignorance in relation to mortgage lending that is astonishing – their mortgage review process and papers have been riddled with errors and misinformation. The regulator has no empathy with lending practices and frowns on high LTV with a ‘one size fits all’ approach that leaves lenders with little leeway for individual assessment. (Please do not think I am one of the ‘routine’ FSA critics – I am not).

    Secondly, lenders require more capital on their balance sheets (as required under regulatory requirements) and access to tranche funds are more limited. They are acutely aware of the FSA supervision teams ready to pounce on them and, with the prevailing market conditions, are more reluctant to take anything other than ‘safe’ risks.

    My sympathies especially to first time buyers but I do not see this changing for the next two years.

Leave a comment

Close

Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm

Email: customerservices@moneymarketing.com