18 June 2020

First-time buyers struggle with high loan-to-value mortgages but there are options available

Hardly a day seems to go by without a high loan-to-value (LTV) mortgage being launched or pulled from the market.

Lockdown, and the inability of surveyors to physically value properties, combined with lenders redirecting resources to deal with mortgage payment holidays, has meant that the pool of high LTV deals on the market has fallen in recent weeks. Lenders cannot rely on a desktop valuation when lending on a high LTV because the risk is too great, so most lenders pulled out of this market, with the notable exception of HSBC which continued to lend at 90 per cent LTV throughout lockdown.

As lockdown started to ease, lenders started to return – Accord, Clydesdale and Virgin Money all started offering 90 per cent again, taking the pressure off HSBC and the small building societies who also had this option. But it was a false dawn: demand was so great that these lenders all pulled out again after a few days in order to maintain service levels. Now they are returning – from this week, Accord will lend at 90 per cent to first-time buyers only taking out five-year fixed-rate mortgages. Coventry Building Society said it would offer its 90 per cent LTV deals but for four days only.

What we need is one or more of the big lenders – Barclays, NatWest, Santander – to return to this market to soak up some of the demand and take the pressure off the lenders operating in this space.

This week Nationwide also said it will no longer lend above 85 per cent LTV (it previously went up to 95 per cent via its branches) but the reason was not due to excessive demand but the fear of falling property prices and the potential of negative equity, where your home is worth less than the mortgage secured on it. With market commentators predicting at least a 5 per cent fall in property prices, the potential for negative equity if you are taking on a high LTV is possible, although it is worth pointing out that it is only an issue if you are selling or remortgaging. Otherwise, if you sit it out and buy property for the long term, prices should recover over time.

Borrowers should not panic. There is more choice of product, better rates and slightly easier affordability criteria on lower LTVs so if you can pull together a bigger deposit – perhaps with the help of the Bank of Mum and Dad – that might be an option.

Expert Advice

At SPF Private Clients we know each lender’s criteria inside out and are abreast of the mortgage market whenever changes and updates occur. We will know which lenders to approach in order to secure the most suitable and cost-effective mortgage for your individual circumstances.

Should you have any questions, or indeed would like to have a chat about the market in general, please do not hesitate to get in touch with SPF.

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