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Big lenders must offer higher LTVs for first time buyers

Ben Thompson

You would be forgiven for feeling a little pessimistic with the way the mortgage market has been shaping up recently. Data from a variety of sources has painted a bleak picture, sentiment generally has been negative and while the British public has not fallen out of love completely with mortgages yet, it is fair to say that the relationship is rocky.

The stats also confirm it is first-time buyers that are bearing the brunt. The CML’s recent mortgage lending figures seemed to reflect an increasing trend towards the exclusion of the under-35 age group from the housing market.

According to the CML, the average age for firsttime buyers has risen to 37 this year compared with 31 in 1981, with a growing number of younger people being forced into rented accommodation or living with family.

A survey by the Legal and General Mortgage Club revealed that the lowest age group of homeowners was the 19-25 age group, accounting for a mere 13 per cent of all homeownership in the UK.

The proportion of those Brits who say they will buy a property in the next 12 months has fallen from 37 per cent in 2010 to 30 per cent in 2011. Forty-four per cent of the 2011 sample were renting and, of this group, 30 per cent said the main reason they were unable to get on the property ladder was an inability to get an affordable mortgage.

Clearly, affordability relative to salaries is still an issue and it is preventing many Brits from realising the dream of homeownership. Inflation eating into disposal incomes, the perceived lack of mainstream mortgage products with realistic LTVs and fears over the wider economic outlook are dissuading purchasers.

However, the outlook may not be as negative as it appears. It is more than likely that it reflects a lack of consumer confidence in the housing market rather than a lack of availability of suitable products for the needs of first-time buyers. We are seeing help emerging for beleaguered borrowers in the shape of smaller lenders still offering 90-100 per cent LTVs. Innovation in the mortgage sector is often driven by smaller players and some of the most interesting products we have seen recently include the 100 per cent LTV mortgage from Aldermore and the 95 per cent deal recently available from Cambridge Building Society.

These smaller lenders often take a more “human” view on how much customers can borrow, using individual underwriters rather than machine judgements, and advisers may well find options open to clients via this route. Such moves may well go some way to healing broken-hearted buyers but until the mainstream lenders re-enter the market at these levels, we expect it to remain challenging but not impossible for buyers.

However, we need some of the big boys to start making moves towards higher LTVs to really start to see a recovery. So, while the picture is not as bleak as same may have you believe, we will only see sentiment change when the lending leviathan’s start dipping their toes back in the water.

Ben Thompson is managing director of Legal & General Mortgage Club


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. WOW – have we only just worked that out ??

  2. Bob Riach Riach IFA 14th October 2011 at 3:44 pm

    Mortgage lenders appear to be playing it safe and seem more interested in lending to the borrowers that have large deposits and that are high earners.
    Lenders are offering the lowest fixed-rate deals that have been around for years, and I believe they will remain low for the foreseeable future. But that won’t be of much comfort to first time buyers who can’t save the big deposits required to access these rates.
    I believe that the reason why Mortgage lenders aren’t lending to First Time Buyers without a large deposit is because the lenders are avoiding risk. Some economists are predicting a 10% fall in house prices this year and Mortgage lenders believe that house prices are likely to fall further.
    First Time Buyers were being priced out of the housing market by Buy-to-Let investors buying up the cheaper properties.
    Lenders including Skipton, Melton Mowbray and Cambridge all offer 95% mortgages, with rates generally falling between 5.5% and 6%. One lender, Aldermore, offers a 100% mortgage to buyers with no deposit – although borrowers will need a family member to act as guarantor. The rate is 6.48% fixed for three years and the loan comes with a £1,298 fee. However every time I have tried to obtain a 95% mortgage for a first time buyer it gets rejected.
    NatWest withdrew its 90% LTV 5.89% five-year fixed rate this week, with no news of a replacement.
    We are seeing first time buyers getting older, with more and more younger buyers struggling to get on the property ladder, often they are helped out buy parents giving them a deposit. Many people who are renting are finding it hard to save for a deposit while seeing their rent go up.
    If the first time buyers can buy, then this in turn slows the housing market as it stops the lower end of the housing market from moving which in turn will stop the higher end of the housing market

  3. The reality is that the housing market is a house of cards built on sand. Easy credit fuelled house price inflation which in turn created the impression that we were all wealthier than was really the case.

    Now that economic reality has hit, why on earth do we want to see people borrowing even larger amounts that they simply cannot afford based on house price to earnings ratios.

    House prices reverting to the long term average is the only reality and I for one actually applaud banks (and you won’t hear me saying that very often!) for not offering risky lending just to appease those who paid too much for their properties in the belief that you couldn’t lose.

  4. Look, I am not a genius but if we want the economy to improve, we must stimulate the housing market. First time buyers buy new homes (building trade) and 2nd hand homes (releasing next time buyers) etc. A confident house economy gives added confidence to everything else and people spend – the economy grows. Release funding to stimulate this ( BUT this time – responsible lending 3-4 times joint income – this is affordable and nobody gets hurt. If workers get 2-3% pay rise, 4X income means house prices rise 8-12% per year and homeowners are happy too – my home is my pension syndrome as house prices rise 8-12% pa. Then use additional revenues to give grants to green energy business – solar panel, wind generator, heat pump manufacturers and sell to the world instead of propping up banks.

  5. No no no no they must NOT do that.

    That is the reason the country is in this mess in the first place. People buying property they can ill afford and who never had the ability or willing to save a deposit to start with.

    The UK needs to go in reverse for a few years. Starting with people learning how to save. Yes, the property market will take a correction, but it is over-priced and needs to happen. The US has taken its medicine and its property prices are now back in line with median incomes, the UK has to do the same. Stop fighting what the inevitable solution.

  6. Why just FTB? What about others who have seen the value of their property equity falling but can still afford the payments? Affordability is much more relevant that LTV.

    And, anonymous at 8.52, homebuyers are not the reason this country’s finances are in a mess. The disgraceful conduct of the banks was not in connection with the UK domestic property market. Repossessions have not been particularly high so far but unless the banks start lending again this country we will be years before we come out of recession and repossessions will start to go up. Ironic really that cutting back on lending is more likely to increase default rather than less.

  7. Lending needs to move away from LTV and more about affordability – lend what the customer can afford

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