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Analysis: Is this the end for 95% LTVs?

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The prospects for aspiring home-owners with a 5 per cent deposit are likely to be bleak for some time, particularly following the news that Skipton Building Society has temporarily pulled out of the 95 per cent loan-to-value market.

Moneymarketing.co.uk revealed last week that Skipton, one of the 95 per cent LTV sector’s main players, had made the decision to temporarily withdraw its products.

The volume of lending in this part of the market has reduced substantially since the financial crisis and 95 per cent mortgages are now mostly only available through building societies.

Leeds Building Society, Darlington BS, Newcastle BS, Saffron BS and Clydesdale and Yorkshire Banks are the only remaining lenders that offer traditional 95 per cent LTV mortgages on a national basis.

Ipswich, Nottingham, Cumberland and Monmouthshire building societies offer these mortgages but only within their local area, while Mansfield BS offers them to direct customers only.

In 2007, 17 per cent of all loans were at 95 per cent LTV or above, compared with just 0.6 per cent in 2011, according to the Council of Mortgage Lenders.

Skipton insists its move to leave the market is only temporary. Head of intermediary sales Paul Darwin says: “We saw a higher proportion of business coming our way, probably because of the end of the stamp duty holiday, and that left us oversubscribed. We are not saying goodbye to that market and it is our intention to return.”

The outlook for 95 per cent LTV lending does not look promising in the short term. The Bank of England’s credit conditions survey, published last week, says lenders feel the availability of credit to high-LTV borrowers will reduce over the second quarter.

London & Country associate director of communications David Hollingworth says: “The market is choppy, criteria is continuing to tighten and funding conditions are difficult, so that is why lenders are not targeting this sector.”

John Charcol senior technical manager Ray Boulger (pictured) says: “What should be perfectly sensible lending is not available at the moment in any significant way and 95 per cent lending will be a niche sector for some time.”

The problem will be compounded if any other lenders in the sector withdraw their products.

Encouragingly, of the lenders that have a national reach or operate through intermediaries, Leeds, Clydesdale and Yorkshire Banks, Saffron and Newcastle all say they have no “imminent plans” to withdraw.

But Skipton was one of the bigger players in the market and its withdrawal could force other lenders to follow suit if they are swamped with new business enquiries, as happened recently with interest-only mortgages.

There has also been regulatory pressure on this type of lending, with the Basel III accord meaning lenders will have to hold around eight times more capital for this type of lending from 2013, compared with 70 per cent LTV products.

But there are good margins to be made for lenders willing to take the risk and meet the capital requirements set to come in.

Lentune Mortgage Consultancy director Stuart Gregory says: “There is a lot of business out there in this part of the market for any lender that wants it. The more competitive this sector is, the less effect things such as Skipton’s withdrawal will have.”

There are alternatives to traditional 95 per cent mortgages. Lloyds TSB offers its Lend a Hand product, which is only available direct.

It allows borrowers with a 5 per cent deposit to use the savings of a friend or family member as additional security.

A number of lenders, such as Scottish BS, Bath BS and National Counties BS, offer 95 per cent LTV mortgages where a family member acts as a guarantor, and Aldermore will go up to 100 per cent on this basis.

There is also the Government’s FirstBuy scheme, where borrowers can get a low-cost loan split between the Government and a housebuilder for up to 20 per cent of the purchase price when buying a newbuild.

The Government also offers its NewBuy scheme, where the housebuilder and Government will underwrite a combined 9 per cent of the loan.

But Hollingworth says: “The schemes will not help those who do not want to buy a newbuild and guarantor mortgages are niche products.
Brokers would prefer to see more standard 95 per cent LTV products on the market.”

Some brokers feel 95 per cent mortgages should not be offered. Capital Fortune managing director Rob Killeen says the prospect of falling house prices could leave a lot of 95 per cent LTV borrowers in negative equity.

He says: “If we see a fall in house prices over 12 to 18 months of maybe 10 to 15 per cent, there would be a good chance that borrowers with higher-LTV ratios would slip into negative equity. It is fair enough to want first- time buyers to get on the housing ladder but not if that ladder is unstable.”

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  1. Madness prevails and the housing market will continue to stagnate for years due to a meddling regulator and a government that couldn’t organize a ****** in a brewery.

    Affordability should be the only question. It wasn’t high LTV that caused the credit crunch, it was lending to people who couldn’t afford the repayments. In fact, it wasn’t even that, it was the greed and stupidity of the banks and a host of financial instruments that they themselves didn’t understand.

    It shouldn’t matter whether the client has any deposit or not. Bring back MGP if necessary. Similarly with interest-only arrangements – there are many, many situations where interest-only is a reasonable way of doing things (at least in the short-to-medium term). The FSA is worried that people will reach retirement and not be able to repay their mortgage. What about all those people who rent all their lives – they’re in the same position but that obvious fact wouldn’t occur to the wombles in Canary Wharf.

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