Product stability and rate rises mark new year for 95% LTV first-time buyer borrowers

Mortgage insurer, AmTrust’s, latest Mortgage Loan to Value (LTV) Tracker has today revealed a degree of positive news for first-time buyers with 5% deposits, as the number of products available to them increased across all categories, however average rates also increased while those for their 75% LTV counterparts continued to fall.

The differential between the average rates taken by those with 25% deposits, compared to those with 5%, has widened further to 1.56% as 75% LTV average rates drop to 1.44% and 95% LTV average rates rise to 3%.

Even as the average first-time buyer house price has dropped to £222,676 – meaning the average deposit required for both 75% and 95% borrowers has dropped slightly – this means that those with 5% deposits are (on average) paying over 51% more each month and year for their mortgages when compared to those who are able to put together a larger deposit.

Those with a 5% deposit will pay just over £1k per month on average for their mortgage, while those with a 25% deposit can expect to pay £663. This is the second iteration of the LTV Tracker where the monthly amount for those taking out a 95% LTV mortgage has been above the £1k amount, even if it is a slight fall from Q3 last year.

AmTrust said the theme of average rates rising for those seeking 95% LTV mortgages had continued throughout the tail-end of 2019, however with a greater degree of political certainty, it anticipated that more lenders might begin to adjust their rates in order to secure greater levels of business.

However, it said the overwhelming focus – and funds – would remain targeted at the perceived lower-risk borrowers with higher deposits and those who had the support of the Bank of Mum & Dad.

Product numbers increase slightly for 95% LTV borrowers

This iteration of the Tracker bucks the theme of the last two quarters, with product numbers inching up slightly for 95% LTV borrowers, after two consecutive quarters of falls.

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 October 2019 figures, the price of an average house as outlined by the December 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.

The end of 2019 appears to have matched the theme of the year previously when mortgage lenders appeared to show an increase in appetite for higher LTV borrowers, upping the product availability for those with 5% deposits across both two-year and all other terms.

This has not been matched in the 75% LTV categories which showed some drops in product availability for all terms/all mortgage deals. AmTrust said this might be as a result of lenders like Tesco Bank and Sainsbury’s Bank leaving the market, and other lenders readjusting their offerings to these changes.

However, AmTrust said the overwhelming theme of product choice for first-time buyers continued to be significantly more mortgages available to those with larger deposits, with over six times as many products in the 75% LTV categories compared to 95% LTV.

Patrick Bamford, Business Development Director at AmTrust Mortgage & Credit, commented: “There has been a slight upturn in terms of product choice for 95% LTV borrowers in this latest version of our LTV Tracker with, for the first time in two quarters, an increase in product choice for those with a 5% deposit.

“This adds to the other positive news which is a slight drop in the average deposit required by high LTV borrowers and a corresponding fall in the average amount payable each month, but these are only very marginally and are unlikely to make a major difference to those seeking to get on the housing ladder.

“The more worrying trend remains an increase in average rates for 95% LTV borrowers and an increase in the rate differential between these first-timers and those with a 25% deposit. We still see the latter group paying 50% less each month in mortgage payments than high LTV borrowers, and this is a trend that shows no sign of changing.

“It means that any potential first-timer who wants to get anywhere near the most competitive rates in the market, needs a significant deposit to do so. At current levels that means having to save over £55k, or be lucky enough to have the Bank of Mum & Dad to call upon – given this situation, it is perhaps not surprising that the number of mortgages available to those in such a fortunate situation continues to grow.

“We are however in danger of creating a mortgage/housing market which can only be accessed by those with family support and this is likely to mean significant numbers of potentially credit-worthy borrowers not being able to become home-owners.

“With a new Government in place, the market will be watching March’s Budget very closely to see if there is any further support to be provided to first-timers, plus of course next year the Help to Buy Scheme will be changed so it is only accessible by first-timers. However, what we need to see is a greater focus on providing high LTV loans, not just for those starting their property journey but those already on the ladder who might wish to move up.

“Regulatory factors play a major role in curbing the amount of high LTV lending lenders can currently write, and we would like to see these addressed and amended, in order to allow lenders to write more business with those borrowers who do not have the support of family and friends to get on the ladder.”