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Mortgage analysis: Broker optimism growing over high LTV recovery

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There is a growing optimism among mortgage brokers about a recovery in high LTV mortgages as Government lending schemes start to kick in.

Moneyfacts figures for August show there were 20 more products available above 90 per cent LTV and five more products for 95 per cent LTV mortgages compared with July.

In total, 15 lenders offered new products in August,m with Moneyfacts arguing lenders are relaxing their attitude to higher risk lending.

In addition, FSA mortgage lending data from Q2 shows 2 per cent of all new loans were for 90 per cent LTV mortgages or higher, the fourth consecutive quarter of growth.

However, the modesty of these figures becomes apparent when considering that in Q2, 2007, the proportion of 90 per cent borrowers was 14.8 per cent.

Those days are gone forever but 95 per cent LTV loans hit a three-year high in Q2, taking up 0.64 per cent of all new mortgages.

And things could get better with the Government desperately trying to boost the construction and housing markets with high LTV schemes such as NewBuy and FirstBuy.

Mortgage industry consultant Mehrdad Yousefi says: “It is encouraging that the number of high LTV deals has gone up and it will probably go up more in the next six to nine months as NewBuy kicks in.

“What would be good in the long-term is if the industry and FSA agree a private sector mortgage indemnity scheme. It would provide a cushion if in the next two or three years the Government pulls out of NewBuy and would also allow people buying second-hand properties to use a MIG.”

For now, though, there is only the Government’s NewBuy scheme, which launched in March so did not affect the FSA’s Q2 numbers. It provides lenders with Government support to offer 95 per cent mortgages on new-build homes.

The scheme has been running for six months and hit 1,300 deals last week, with the Home Builders Federation claiming it is “gaining momentum”, with more lenders and builders on board.

Last week, Scotland launched its own version, MI New Homes, with Nationwide and Royal Bank of Scotland both offering new 95 per cent deals to Scottish borrowers.

Wales is also consulting on its own version of NewBuy to boost building and mortgage lending.

Capital Economics property economist Matthew Pointon says: “Following on from the launch of the NewBuy scheme in March, there is some tentative evidence that lending at 95 per cent LTV ratios is starting to come back.

“At 0.64 per cent, the share of mortgage lending based on a 5 per cent deposit or less hit a three-year high. But clearly we would need to see a substantial improvement before we could conclude that a meaningful recovery is under way.”

These are merely the green shoots of recovery but for a market that has been moribund for two years, brokers will take anything they can right now.

Hometrack director Gary Styles says: “It is welcome that we are starting to see more lending at the higher end, even if it is modest, and a sign that things are easing among lenders. I would be surprised if they represent anything other than the very early signs of improvement.”

Brokers say while there are more high LTV deals around, there are a variety of problems holding back a full recovery.

One concern is that any 90 per cent LTV deals are subject to impenetrably tough criteria.

While FSA figures show the number of 90 per cent LTV mortgages grew, those with high income multiples of 3.5 times income for a single person and 2.75 times for joint income were static at 1.3 per cent.

LSL Property Services David Copland says: “All the sourcing systems show there are more high LTV products but until the scorecards relax we are not going to get the market moving and that would be the fundamental shift.”

Lentune Mortgage Consultancy director Stuart Gregory says the market for high LTV mortgages is improving all the time.

He says: “I have seen progress with lenders tweaking criteria and other lenders have responded to it such as Leeds Building Society abandoning income multiples. Hopefully it continues because the demand is getting greater but nobody is asking for things to go crazy overnight.”

Another obstacle has been higher capital requirements for high LTV loans, which make them expensive for lenders.

However, this year, lenders have been engaged in a rate war alongside falling funding costs in the form of plummeting Libor and swap rates.

The funding for lending scheme launched by the Bank of England aims to address high rates by providing cheap Bank loans to lenders.

Gregory says: “It is much more appealing to look at the high LTV deals now. The problem last year was that every deal was costing more than 6 per cent and while it is great the lenders are offering high LTV deals. they were not affordable to clients. More could be done and hopefully funding for lending will cause lenders to see there is a market.”

Building Societies Association head of mortgage policy Paul Broadhead says some borrowers are not aware that high LTV products are available.

He says: “We are certainly seeing a lot more activity at high LTVs for credit-worthy borrowers. There is still a demand issue because while there are more high LTV products there are still a group of borrowers who think there is no lending above 75 per cent LTV. There is still a challenge for lenders to let borrowers know there are products available.”

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