Shifts in the industry that have seen buyers required to put up significantly higher deposits have been branded a “market failure” by chancellor George Osborne, who used a speech today (9 September) to argue that higher loan-to-value mortgages should not be shunned as dangerous.
In a speech on the state of the economy, Mr Osborne criticised the current state of the mortgage market for first-time buyers and cited figures showing that LTVs remain in many cases stubbornly below the desired level, after falling 10 per cent from long-term averages.
According to Mr Osborne, house prices are one quarter lower than their peak price and are back at 2003 levels relative to earnings. However, he said only slightly more than half the number of mortgages are being approved compared to pre-crisis levels.
He said: “The median LTV for first time buyers has fallen from a long term average of 90 per cent to just 80 per cent now. This change is not something we should welcome; it is both a market failure and a social problem - imagine if you’d had to find twice as big a deposit for your first home.
He went on to say that 90 and 95 per cent LTV mortgages are “not exotic weapons of financial mass destruction”, saying instead that they are “a regular part of a healthy mortgage market and an aspirational society”.
Many commentators have highlighted the pernicious effects of the forced recapitalisation being undertaken by banks on lending practices, with many lending substantially less to small business and first-time homebuyers as they seek to de-risk portfolios and build balance sheet capital.
Figures published last week showed that despite banks having an outstanding balance of £17.6bn that has been drawn under the government’s Funding for Lending Scheme, over the 12 months it has been running net lending has actually decreased among the 41 participating institutions by £2.3bn.
Mr Osborne argued that the government’s Help to Buy scheme is a simple solution to the problem of hard-to-find high-LTV mortgages, which will be seen as a response to critics who had urged the chancellor to reconsider the second phase of the scheme, starting next year, which would give borrowers, including those buying a second home, equity loans for house purchases.
