Mortgage insurer AmTrust’s latest Mortgage Loan to Value (LTV) Tracker has today revealed a significant increase in the cost of the average property bought by first-time buyers since the last iteration of the Tracker, resulting in raised deposit levels, loan amounts, and monthly and annual mortgage costs.
According to the latest UK Finance figures, the average first-time buyer house bought in May this year was over £200k at £214,623, meaning those who wanted to put down a 25% deposit needed over £50k, and those with a 5% deposit had to find over £10k.
This meant that the monthly mortgage cost disparity for average first-time buyers seeking average-priced homes continues to be significant, with 95% LTV borrowers continuing to pay close to 50% more for their mortgages than those at the 75% LTV level.
This, at a time, when average mortgage rates continue to fall. In a first for the Tracker, the average 95% LTV mortgage rate dropped below 3% to 2.95%, while the average 75% LTV rate dropped again from 1.68% to 1.65%. The rate differential continued to narrow, down from 1.35% in Quarter 1 this year to 1.3% now.
Those with smaller deposits pay (on average) £962 per month/£11,544 each year, while those with 25% deposits pay (on average) £655 per month/£7,860 per year. This is also a significant increase on the Quarter 1 results, especially for 95% LTV borrowers who have seen costs rise by over £150 per month and close to £2k per year.
AmTrust says that a larger number of lenders active in the first-time buyer space has resulted in a squeeze on product pricing, however it appears from this latest iteration that those lenders are much more likely to be seeking higher-deposit borrowers.
Product numbers fall back for 95% LTV borrowers
Recent Trackers have seen a shift upwards in product numbers for 95% LTV borrowers, however this is not the case in this iteration, with less mortgage options for those only putting down a 5% deposit.
The AmTrust LTV survey reviews the number of actual product options available to first-time buyers with either a 5% or 25% deposit based on the price of an average first-time buyer house from UK Finance May 2019 figures, the price of an average house as outlined by the June 2019 Halifax House Price Index, and the price of a house at the starting tier of stamp duty land tax, £300k. Below this amount first-time buyers do not currently need to pay any stamp duty.
In order to do this, AmTrust uses one of the online mortgage search engines which includes deals available to both mortgage advisers and direct-only.
After two consecutive Trackers where 95% LTV product numbers rose, these fell back this time however there was an increase for all 75% LTV options. Two-year product options for 95% LTV borrowers stayed beyond three figures across all three scenarios but were less than last time, while those looking at all mortgage terms and options, still have close to 260 products to choose from, however this was again down on the Q1 Tracker.
All 75% LTV product options rose especially for those first-time buyers who are considering all terms and all deals, up almost 200 on the last iteration of the Tracker. Those lucky enough to have 25% to put down, and want a two-year deal, have well over 700 products to choose from, while those looking at all terms have well over 1,600.
This means there are now over six times as many products for 75% LTV first-time buyer borrowers as there are for their 95% LTV counterparts.
AmTrust suggests that the rise in 75% LTV numbers might be explained by lenders seeking out, what they perceive as, less risky first-time buyers who are able to put together large deposits. It argues that the Bank of Mum & Dad is helping fuel lenders’ push towards higher-deposit products, particularly in an economic environment which feels uncertain due to political pressures such as Brexit.
Patrick Bamford, Business Development Director at AmTrust Mortgage & Credit, commented: “This iteration of our Tracker is particularly interesting as it is, in the main, defined by a significant increase in the average property price paid by first-time buyers. UK Finance figures reveal that the average price was well over £200k – for the first time in the history of the Tracker – and that, coupled with an average LTV of 77.8%, means we have seen a big increase in the deposits and loans required, and thus a large increase in monthly and annual mortgage costs.
“Even in a market where competition is squeezing pricing significantly, the large increase in property price means that any benefit from lower rates is wiped out by the size of the loans that need to be serviced.
“What we tend to find is anecdotal evidence that first-timers are willing to push themselves further, not just to get on the housing ladder, but to get into higher-priced properties which they can stay in for a longer time. This means they will not have to move in quick succession but will have to cover larger mortgage costs in order to buy more expensive properties.
“Interestingly, after a period of product increase in 95% LTV mortgage options, this Tracker sees a discernable drop albeit one which does not take too many products out of the market. Conversely, higher-deposit product choice has grown considerably; there are now close to 200 more products to choose from for those who are fortunate to have a 25% deposit.
“Part of this has to be about the way the mortgage market is shifting towards Bank of Mum & Dad-style options for first-time buyers. There are far more products available for those lucky to get access to the ‘Bank…’; indeed we have professed concern that lenders are moving too far in this direction to a point were those who can’t rely on parental or grandparent support are not going to be able to find a mortgage suitable for their smaller deposit situation.
“We believe this needs to be addressed by lenders and we do not wish to see this drop in high LTV products continue, as this severely hampers those first-time buyers who want to purchase but can only secure a small deposit.
“Lenders may however continue to be more risk-averse while we see continued uncertainty in the economy fueled by the ongoing Brexit debate. For these providers, having a bigger deposit seems to provide them with greater assurance, which is perhaps why we’ve seen the big leap in 75% LTV product numbers.
“Overall, we need a mortgage market that works for all, and there is plenty of opportunity for lenders to be active in the high LTV space and mitigate their risk with products such as private mortgage insurance. This should not just be a market for ‘customers’ of the Bank of Mum & Dad, and by utilising insurance within their proposition, lenders can make sure this direction of travel does not leave many potential first-time buyer passengers stranded.”