Since the easing of lockdown restrictions, the market for high LTV products has seen lenders come in and out with restrictions on the number of applications accepted each day, limited launches, and product withdrawals after high demand.
Now Alex Beavis, head of mortgage products at Skipton Building Society, warned if the trend persists there could be some unwanted consequences.
He said: “There is concern, I think, more widely that if that situation continues in the long term, that actually might start to hurt house prices because the first-time buyers that are wanting higher loan-to-value mortgages won’t be able to get them and that means the vendors that are selling these properties won’t be able to sell, or may be forced to lower their prices”.
Additionally, Mr Beavis said the high level of demand met by lenders offering products at 90 per cent LTV, before having to temporarily withdraw from the market, had made it difficult and potentially deterred some new lenders from joining.
While the building society is lending up to 85 per cent LTV on standard residential purchases and remortgages, Mr Beavis said there were three factors at play when it came to a potential return to higher LTV lending.
Citing service and operational constraints amid just a few lenders offering high LTV products, Mr Beavis said providers were also trying to deal with the multitude of customers who had taken payment deferrals.
Additionally, Mr Beavis raised the question of what will happen in the economy when the government’s coronavirus support schemes for furloughed employees, the self-employed and mortgage borrowers come to an end in October.
He said: “How many [customers who deferred their mortgage payment] will lose their jobs, might struggle to pay their mortgages, and for lenders what that might mean depending on [what] proportion of that is additional impairment held on the balance sheet, which reduces profitability, eats into lender capital and might then in turn impact their ability to lend on new loans.
“The higher the loan-to-value, the more susceptible those customers are from adverse movement in house prices.
“And what we don’t want to do is loan to a lot of customers who then immediately go into negative equity and then become mortgage prisoners or trapped borrowers.”
He added: “I think a lot of lenders, Skipton included, are cautiously waiting to see what happens with the wider economic recovery”.
The latest house price index from Halifax showed average prices in July were up 1.6 per cent from June, the highest month-on-month increase this year.
But Russell Galley, managing director at Halifax, warned: “[Looking] further ahead, there is still a great deal of uncertainty around the lasting impact of the pandemic. As government support measures come to an end, the resulting impact on the macroeconomic environment, and in turn the housing market, will start to become more apparent.
“In particular, a weakening in labour market conditions would lead us to expect greater downward pressure on prices in the medium-term.”
chloe.cheung@ft.com
