FTB numbers hit a 12-year high of 370,000 last year, according to UK Finance, and accounted for 50 per cent of housebuyers. Data from Moneyfacts shows not only are rates on 90-95 per cent loan-to-value mortgages cheaper than before, on average, but also that there are more of these deals available.
Table 1 compares the average interest rate on two-year fixed-rate mortgage deals with their equivalents five years ago. Rates have fallen in all cases, but the drop is most significant for the 90-95 per cent LTV tiers – as is the increase in the number of products available.
Table 1: Two-year fixed-rate mortgages, 2014 v 2019
| Loan -to-value | 60% | 70% | 75% | 80% | 85% | 90% | 95% |
| Change in number of mortgages available | 5 | -55 | 55 | 2 | 70 | 144 | 73 |
| Change in average rate (pp) | -1.06 | -1.3 | -0.85 | -1.12 | -1.23 | -1.65 | -2.08 |
Source: Moneyfacts. Copyright: Money Management
Competitive edge
Moneyfacts spokesman Darren Cook suggests that providers appear to have sacrificed some risk by lowering rates at the higher LTV tiers in a bid to maintain their competitive edge. He also points to the narrowing of the rate spread between lower and higher LTV deals. For example, the difference between average rates on 70 and 90 per cent LTV products has fallen from 0.46 per cent in 2014 to 0.11 per cent this year. This contrasts with the spread between 60 and 70 per cent LTV deals, which has come down from 0.88 per cent to 0.64 per cent over the same period.
Mr Cook highlights intense competition and squeezed margins, particularly in the riskier, higher LTV space, and suggests that lenders are unlikely to be able to decrease interest rates much further.
However, the trends have raised alarm in some quarters, with mortgage lending activity attracting closer regulatory scrutiny.
In a speech to the Building Society Association to mark its 150th anniversary, Sam Woods, head of the Prudential Regulation Authority, warned that regulators “should be watching lenders like a hawk”.
Referencing the price war in the mortgage market over the past couple of years and the negative impact on net interest margins for lenders concentrated in mortgages, he pointed to a dramatic fall in spreads, a marked shift in the high-LTV share of new lending, and a significant increase in firms’ appetite for higher LTV and higher loan-to-income lending. The UK housing market, he said, is the biggest single loan exposure for deposit takers and the biggest liability ofUK households.
High housing costs
Yet despite record-low mortgage rates, particularly on higher LTV deals that are more likely to attract FTBs, affordability remains an issue. A survey of employed non-homeowners conducted by Close Brothers found that 65 per cent still aspired to be homeowners.
However, almost half believe they will never be able to afford to get on the property ladder because of the high cost of living. Around 27 per cent of all respondents, both homeowners and non-homeowners, revealed they are spending more than half their income on housing costs, while 10 per cent are spending more than 70 per cent.
Before the financial crisis, some 400,000 FTBs a year got on the housing ladder. The figure fell dramatically once the crisis ensued, and although numbers have been recovering, things are not the same as they were.
Research on FTBs published by the Intermediary Mortgage Lenders Association earlier in the year calculated that around 2.4m households that would probably have bought a property in pre-crisis conditions have failed to do so. It says deposit constraints have acted as “a severe brake” to these households, and that unless there are drastic changes, many of them will be permanently excluded from the UK’s homeownership club.
IMLA called on regulators to reassess the costs and benefits of the current regulatory structure. Instead, particularly with a backdrop of uncertainty presented by Brexit, regulators look set to apply the brakes to the mortgage market once again.
