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Differentials thwart FTBs

Paul Thomas reports that first-time buyers are still being kept out of the market by LTV pricing

Rate cuts, stamp duty incentives and a lender adding a 90 per cent LTV mortgage to the market should all help to boost the prospects for first-time buyers.

But some brokers believe the situation is unlikely to improve much for FTBs as the rate cuts by major lenders apply mainly to mortgages with lower LTVs.

John Charcol senior technical manager Ray Boulger says problems remain on mortgage pricing for FTBs because of the capital requirements for lenders when offering higher-LTV loans.

He says: “Some of the problems lenders have for pricing up mortgages for first-time buyers are not going to go away even when the impact of the credit crunch dwindles.

“The requirements for lenders to set aside a much higher proportion of capital to support high-LTV loans are a key factor in the differential pricing. The cost to the lender of offering a high-LTV mortgage is going to be significantly more than it used to be.”

The Mortgage Practitioner principal Danny Lovey says: “The reason I think some of the lower LTVs are coming down is what I would call selective customer retention. If you are on 50 or 60 per cent LTV, they do not want to lose you and they are happy for clients who are on higher LTVs to stay on SVR.

“They are making money off the high LTVs by not offering them anything decent because they do not need to.”

Brentchase Financial services sales director Mike Fitzgerald believes another stumbling block for first-time buyers is the lack of higher-LTV products on the market.

’The requirements for lenders to set aside a much higher proportion of capital to support high-LTV loans are a key factor in the differential pricing. The cost to the lender of offering a high-LTV mortgage is going to be significantly more than it used to be’

He says: “There are only a handful of 95 per cent products. LTVs have got to be moved upwards – and not at ridiculous rates.

“Lenders are fattening their balance sheets. We will have these rates for a while until they are all armed and dangerous and they feel more confident but, in between time, clients cannot move and they cannot get mortgages.”

Brokers also criticise the doubling of the stamp duty threshold for FTBs in the Budget and question the nature of the Post Office’s aim to double its mortgage lending and the effect on FTBs.

Boulger likens the stamp duty scheme to a series of supermarket “special offers”. He says: “It is not going to make a significant difference to the property market in the short term. To run a series of special offers is fine for supermarkets but not a good way to decide your taxation policy.”

Lovey is also concerned over the lack of advice from by the Post Office.

He says: “That is the Government promoting non-advice and if anyone needs advice it us the first-time buyer.

“This Government and its poodle, the FSA, talk about advice but they do not believe in it. They actively work against the advice process through their legislation.”

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