Lenders expand 95% LTVs but accessibility still lacking

Lenders expand 95% LTVs but accessibility still lacking

Accord, Metro Bank, and Newcastle Building Society are just some of the lenders fleshing out their 95 per cent loan-to-value mortgage ranges amid a market revival of the low deposit product.

As of June 23, there were 231 products with a 95 per cent loan-to-value on the market, according to Moneyfacts data.

Kevin Roberts, director at Legal & General Mortgage Club, had rightly predicted back in May: “After the first few lenders return to 95 per cent loan-to-value, we’ll start to see an easing of criteria and [the market] getting more competitive as well.”

Accord, one of the first to return to the 95 per cent loan-to-value space in March, has more recently introduced a five-year fixed rate remortgage at 3.88 per cent for up to £600,000.

This week also saw Metro Bank add two and three-year fixed rate mortgages to its 95 per cent loan-to-value residential range, starting at 3.69 and 3.79 per cent respectively.

What's more, a new government guarantee scheme is enticing more lenders to come to market.

Whilst Accord and Metro Bank have originated their 95 per cent loan-to-value mortgages independently, lenders such as Virgin Money, HSBC, and Barclays have all taken part in the government's 95 per cent mortgage guarantee scheme, which guarantees a portion of the high-risk mortgage, hence minimising the risk of a default and any possible losses for the lender.

"The government scheme has alleviated demand on smaller lenders," explained Newcastle BS' chief customer officer, Stuart Miller. 

Without demand met by larger players, smaller lenders like Newcastle BS would have struggled to meet it alone, he said.

But for borrowers, government backed or not, the criteria remains the same. "It does not have any impact on the customer’s terms and conditions, including the requirement for them to meet their monthly payments as normal," a spokesperson from Virgin Money explained. "For the customer it is a straightforward 95 per cent loan-to-value mortgage."

High barriers to entry

This means the traditionally high barriers to entry for borrowers when it comes to 5 per cent deposit affordability criteria still exist post-pandemic.

Arjan Verbeek, co-founder and CEO of aspiring digital lender Perenna, said: “While low deposit buyers will be pleased at the opportunity to keep their upfront cost to just 5 per cent of their desired property value, many will still be unable to access the mortgage amount they need.

"The combination of the 4.5x loan-to-income limit and stress testing mean many simply will not be approved for the mortgage they need, despite being able to afford the monthly payments."

There is also a private scheme for these types of mortgages. Under the Deposit Unlock scheme, Newcastle BS launched two and five-year fixed rate 95 per cent loan-to-value mortgages at 3.50 and 3.75 per cent, respectively.

This scheme, built by the Home Builders Federation and its members, runs insurance protection in the background courtesy of Gallagher Re.

Unlike the government, which charges the lenders for the insurance premium, the Deposit Unlock scheme sees the insurer charge the builder a percentage of the house price.