MortgagesJun 25 2021

Lenders expand 95% LTVs but accessibility still lacking

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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.

This makes the mortgages cheaper for lenders like Newcastle BS, hence allowing them to offer cheaper rates to borrowers. But affordability criteria are still the same.

More products needed

Despite the rise in 95 per cent LTV products Your Mortgage Decisions’ director Dominik Lipniki thinks there is still “nowhere near enough” choice for borrowers.

“Particularly in the remortgage market, which for me is very surprising,” he added. Moneyfacts data shows there were 404 mortgages at 95 per cent loan-to-value on the market back in June 2019, compared with 231 today.

“The fact that the housing market has stayed strong throughout the pandemic should give lenders more confidence in the higher loan-to-value sphere and more products being made available is welcomed," said Lipniki.

Asked whether these sorts of deals would last, Moneyfacts' financial expert, Rachel Springall, said this will depend on what happens once the UK government’s mortgage guarantee scheme is pulled. “Note, we did see some 5 per cent deals return before its inception and sit outside of the scheme,” she said.

Other lenders to announce products in this space include Leeds Building Society, which unveiled a two-year fixed rate mortgage at 3.65 per cent on June 23.

Last week, Virgin Money added another 95 per cent loan-to-value mortgage product to its armoury, having re-entered the space earlier this month with the government's help.

Newcastle Intermediaries also re-entered the 95 per cent loan-to-value space this month, with two and five-year mortgages at fixed rates of 3.80 and 3.89 per cent, respectively.