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In search of a plan B

Lenders continue to shy away from offering high-LTV mortgages and Paul Thomas asks if top-up loans or higher lending charges could get the market moving

Brokers are doubtful that lenders will offer more high-LTV mortgages in the near future amid fears they could attract attention from the FSA.

In a market where high-street lenders are generally only lending to borrowers with a substantial deposit, usually around 25-30 per cent, first-time buyers and those looking to buy their second home are suffering the most.

Figures from Moneyfacts.co.uk show there are currently eight 100 per cent loan-to-value mortgages available in the UK but they are only available to residents of Northern Ireland.

There are 25 products at 95 per cent LTV but Moneyfacts.co.uk spokeswoman Michelle Slade says, in the main, first-time buyers are only really able to get mortgages at up to 90 per cent LTV.

Abacus Financial director Matthew Fleming-Duffy says: “There is not much in the way of products for first-time borrowers. I ran a search recently for a 95 per cent product and I came up with four lenders. It is not good that you only have four lenders willing to talk to people with a 5 per cent deposit.”

He says it is unlikely lenders will introduce 100 per cent mortgages because of fears it would bring FSA attention.

He says: “One hundred per cent mortgages are the types of schemes that underpin the market and keep it buoyant. But any lender that starts talking about launching that sort of product will wake up the regulator and it will take a closer look at them.”

Your Mortgage Decision director Dominik Lipnicki says: “The regulator would jump on 100 per cent products straight away. It would be great to see more 95 per cent LTV products coming back, though. First-time buyers keep the housing market moving and it is hard for them to get a mortgage at the moment.”

A Council of Mortgage Lenders spokeswoman says: “Regulatory attention is one of the factors involved but I think the more important reasons why these types of products are not out there are the risk they involve and the capital requirements.

“It costs lenders so much more in terms of the amount of capital they have to hold on a high-LTV loan.”

Brokers have told Money Marketing they would like to see lenders accepting borrowers with top-up loans. These work by providing a second loan through a third party, usually an estate agent or house-builder, to plug the gap between the LTV the lender will offer and the deposit the borrower has. Brokers say it would help more borrowers get on the property ladder.

Assetz, a property investment firm, plans to launch a top-up scheme this year and has partnered with a regional bank and a national housebuilder to do so.
But lenders are concerned about borrowers having to service both a monthly mortgage payment and the top-up loan.

Enness Private Clients partner Hugh Wade-Jones says a higher lending charge or mortgage indemnity insurance would be a better way to give lenders the assurance they need to lend to these borrowers.

An HLC is an insurance policy charged by the lender to ensure it is protected in case the borrower defaults.

Wade-Jones says: “Instead of unregulated top-up loans, potentially by people with unhealthy vested interests in the property sale, such as developers and estate agents, an area I would like to see return to the mortgage market is HLC.”

He says a lender may be more inclined to approve a mortgage if it knows the full cost involved in the application. But with a top-up loan, the lender may find it difficult to assess affordability.

He says: “With HLC, the lender is fully aware of all costs, rather than having little or no information about a top-up loan provided by a third party.”

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