Cost-of-living crisis is leading to fears of losing high LTV products
High loan-to-value (LTV) mortgages are often the first to go and the last to come back during a period of economic turmoil.
As such, many would-be first-time buyers are conscious that the higher LTV products they would require to make their first step on to the property ladder may disappear during the cost-of-living crisis.
As house prices have continued their upward trajectory, despite smaller growth reported recently, the property market has gradually become harder to step on to over time.
Stuart Bryce (pictured), head of business development at Chorley Building Society, explained that for a number of years, many borrowers have found themselves benefiting from a very low Bank of England base rate environment. However, the Bank of England has consecutively increased the base rate over the course of 2022, with the Monitory Policy Committee (MPC) pushing the rate up as far as 1.75%.
“Now that times are changing, with interest rates and the cost-of-living both increasing, there may be a fear that high LTV lending could be jeopardised,” Bryce said.
Read more: High LTV mortgages – what is the impact of the current economic environment?
He went on to question, with these financial challenges, what does that mean for borrowers and what does the future hold for 95% LTV lending? Is it likely that lenders may look to reduce their maximum LTV limits?
These financial constraints, alongside the strong house price growth that has been seen recently, Bryce believes mean that buying a house for the first time may become that bit harder to achieve, especially whilst trying to save a deposit.
“As a mutual our ‘raison d’être’, the most important reason for our existence, is to help as many people as possible to get on to the property ladder, especially first-time buyers,” Bryce said.
Looking to what products and schemes can help first-time buyers during this difficult period financially, Bryce pointed to the obvious choice of 95% LTV products, but also noted options such as gifted deposits, including from close family friends, concessionary purchases, Discount Market Sales (DMS), Right to Buy, Right to Acquire and the government’s First Home and Help to Buy schemes.
Another angle to consider, Bryce said, is Joint Borrower Sole Proprietor which allows parents to help with mortgage affordability without being an owner of the property.
Read more: Rising cost-of-living and first-time buyers – what’s the impact?
Bryce went on to say that, as it currently stands, the high LTV market remains fairly buoyant and should continue to support first-time buyers.
However, he noted that this position can be influenced by various factors including how other lenders expect house prices to perform in the future.
“Our own ability to lend often depends upon the overall strength or depth of this segment of the market in terms of other active lenders, as we have a limited tranche of funds and could find ourselves inundated if others were to withdraw,” Bryce noted.
An example of this was during the pandemic, when many lenders pulled their high LTV mortgages, which then resulted in incredibly high demand for this product type on those lenders who remained in the market for that bit longer.
Bryce noted that during the cost-of-living crisis, there has been the odd lender that has withdrawn products, however he said that the society has also recently seen other lenders adding 95% LTV lending to their product range.
“At this present point in time, we certainly have not seen a pronounced shift away from high LTV lending, as we did at the start of the pandemic, which has been good news for first-time buyers,” he concluded.
