ResidentialSep 2 2020

Lender protects against downturn with focus on low LTV

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Lender protects against downturn with focus on low LTV
Credit: Chris Ratcliffe/Bloomberg
ByChloe Cheung

A focus on “high quality”, low loan-to-value mortgage lending will provide some measure of protection against a downturn in the housing market, Coventry Building Society has said.

In its interim financial report for the six months ended June 30, published last week (August 28), the building society said it expects the coronavirus crisis to lead to a “deterioration” in the credit environment, which may increase the risk of arrears and losses on its loan book in the future.

The lender’s maximum LTV on purchase residential mortgages is currently 85 per cent, though it has previously launched 90 per cent LTV products for limited periods of two working days.

On average, the loan-to-value ratio of loans originated in the six months to June 30 hovered around the 57 per cent mark, it said.

A spokesperson said: "As a mutual building society the organisation is run in the long term interest of members, with prudence and resilience at its core.

"Our long-term focus on high quality and low LTV lending has proved to be a winning formula, giving us a strong foundation to provide a range of higher LTV products too.

"While the property market is performing well at the moment, driven by the stamp duty holiday and strong demand amongst those able to move, the economy is facing a turbulent time. 

"But lower LTV lending has always provided protection to a lender against the possibility of falling house prices and this remains true today."

But Coventry Building Society said it expected its mortgage book to continue to grow in the second half of the year after seeing slight growth during the pandemic despite the “challenging environment”.

Mortgage balances at the building society had reached £43bn in the half year, up by £0.8bn, after a “strong” first quarter.

By comparison, the building society’s mortgage balances increased by £1.3bn during the first six months of 2019.

Steve Hughes, chief executive at Coventry Building Society, said: “I joined the society on the 20th April with Covid-19 impacting all parts of the society and affecting our members, intermediaries, colleagues and the communities in which we operate. It has dominated the first half of the year.

"We responded quickly to keep members and colleagues safe and stayed open for business. I am very proud of the service we’ve maintained for our borrowers and intermediaries in these very challenging times and proud also that we’ve continued to grow our mortgages and outperform the market in doing so."

Last month Alex Beavis, head of mortgage products at Skipton Building Society, said he believed many lenders were “cautiously waiting” to see what would happen with the wider economic recovery before potentially returning to higher LTV lending.