95% LTV: looking behind the figures

95% LTV: looking behind the figures

There are a whole raft of ways in which we can judge the performance of the mortgage market at any given time – for instance, there’s always a significant amount of interest in the gross lending figures each month, especially in terms of their month-on-month comparison but also when looking against the same month’s performance in the previous year.

Then we have activity levels, be that the number of loans offered, in the pipeline, or completed. Indeed, broker practices will take great interest in their activity especially in a variety of sectors, given that (as we know) various sectors often get their ‘day in the sun’ for a number of months before economic, political and regulatory changes send in the proverbial clouds. Buy-to-let in particular springs to mind as one area which has seen more changes than most.

Then of course, we have the competitiveness of the mortgages on offer – again, the mainstream personal finance media in particular tends to spend a lot of column inches analysing ‘record-breaking’ rates. Given the historically-low pricing we’ve had over the last 10 years or so, there has been plenty to consider with two-year fixed rates priced below 1% at one time, and let’s be honest the most keenly-priced loans are not a million miles away from these rates today.

This focus on ‘best buy rates’ seemed all-encompassing, especially in the days when direct-to-consumer distribution tended to dominate – getting into those ‘best buy’ tables appeared to be the be all and end all back then, providing a significant PR boost to the lender concerned even if the tranche of funding behind those products was miniscule and the products would be pulled within a blink of an eye. However, if you are focused on appealing directly to consumers then you can understand why lenders would want to grab those headlines.

Often, advisers would (quite rightly) point out that the products concerned would not be available to the vast majority of their clients, and that this was all something of a media ruse, but it didn’t (and doesn’t) stop certain lenders from continuing to go through this process. After all, there will be some borrowers who are eligible for the rate and will pick it up, before it’s taken off the shelves.

I was reminded of this recently, when looking at the latest product figures to come from Moneyfacts data which suggests that 95% LTV mortgage numbers are now at their highest level, apparently since April 2008. For those advisers with a number of prospective, probably first-time buyer clients, who have just a 5% deposit, I wouldn’t hang the bunting out just yet though because the number of products is currently just over 300 – a veritable drop in the ocean when compared to the hundreds/thousands of products available at other LTVs.

And yet, let’s not deny that there is a hint of positivity about the growth in 95% LTV product numbers but let’s also not get too ahead of ourselves here, because once again I can’t help but think of those products that make it into the ‘best buy’ tables, are only claimed by a very small number of borrowers and disappear very quickly.

Our regular quarterly LTV Tracker not only looks at the change in pricing of 95% LTV products, the differential for the average first-time buyer who is lucky enough to have a 25% deposit, but it also reviews the product availability for those with a 5% deposit and wanting to buy an averagely-priced first-time buyer home in the UK. Let’s just say that when you plug in the numbers, you’re not going to be bowled over by the number of products you’re eligible for – in past iterations of the Tracker it’s been as low as one to six products depending on what type of deal you want. That’s a long way away from 300-plus products although, in fairness, at the end of last year the numbers had shifted up significantly to between 66 and 164, so we’re clearly moving in the right direction.

The big issues that tend to be forgotten in this, ‘Record number of 95% LTV mortgage products’, is the difficulty people have in saving up that 5% deposit especially if you have no Bank of Mum and Dad to support you, the behind the scenes appetite to lend from lenders – it’s okay having such a product but if you have no appetite to lend in this space then no lending will complete, the affordability and criteria measures that borrowers have to satisfy to get the loan, and the increased costs of securing a 95% LTV mortgage as compared to, for example, a 75% LTV loan. Again, according to our last Tracker, those latter borrowers are generally paying up to 65% less each month than those on 95% LTV loans – that’s a huge differential and one that may be very difficult for new borrowers to overcome.

So, while we might well applaud lenders looking at the first-time buyer market with something akin to a more focused glare, and the increase in products at the 95% LTV level, there does need to be a read-across from product numbers to actual lending. Undoubtedly, interest has been piqued by greater demand, the opportunity for larger margins, and the Government’s ongoing support for first-timers, however product numbers tell only a small part of the story and there is a wider story that may not be as positive as some would like to make out.

Pad Bamford is business development director at AmTrust Mortgage & Credit