There is no doubting the plight that first-time buyers (FTB) face when it comes to getting onto that ever more elusive property ladder.
Reports on affordability issues and rocketing house prices come thick and fast, with the latest Communities and Local Government House Price Index now putting the average house price in April at £209,454 and house price inflation at 11.3 per cent. It is little wonder people have concurred with the forecast from the National Housing and Planning Advice Unit that home buyers will face house prices of around 10 times their annual income by 2026.
Entering the market
So, with the FTB market experiencing continual difficulties, it is understandable that lenders are trying to find a way to reach this vital part of the market. Abbey’s recent entrance into the 100 per cent mortgage market is a direct attempt at attracting FTB business to its doors.
find out more about this weeks industry news
While some have decried 100 per cent deals as leading borrowers down the dark and dangerous path towards financial problems, many borrowers, unable to save a deposit or not willing to wait several years while they scrape one together, see it as the only route to buying. It may be riskier lending, but lenders and borrowers alike believe it is worth it.
Abbey’s entrance has certainly been welcomed. Pete Marshall, commercial director of MoneyExpert.com, feels this move by a major lender is a recognition of the changes that have taken place in the mortgage market and the help FTBs need. He explains: “There are already over 150 different fixed rate 100 per cent deals available and the average rate of those is around 6.47 per cent. Affordability is the buzz word in the mortgage market and that’s never more true than for 100 per cent mortgages. Lenders take each customer as they come and will weigh up their ability to repay the loan before committing to a deal; so FTBs shouldn’t necessarily expect to get a headline rate.”
An emerging trend?
Yet, Moneyfacts.co.uk has noted a trend among lenders of disappearing higher risk fixed rates that could see lenders becoming more cautious in light of rising interest rates and inflation. Julia Harris, mortgage analyst at Moneyfacts.co.uk, cites the particular examples of HSBC, which has lowered its maximum loan-to-values (LTV), Birmingham Midshires, which withdrew its fixed rates with additional 30 per cent LTV, and Portman, which withdrew its 100 per cent LTV deals.
find the latest industry jobs
However, Matthew Wyles, group development director for Portman, states that its 100 per cent deals have not disappeared, but have simply all been placed under The Mortgage Works (TMW) banner, as 100 per cent lending is a specialist product. He adds: “Criteria over the last two to three years has got progressively looser. There’s no truth to lenders becoming more cautious. While HSBC is a world bank, it is not really a bellwether for the UK mortgage market. In a sense, the 100 per cent line is an artificial division. The real line is 95 per cent, because a lot of prime lenders tend to back out at that point.”
For Ricky Okey, managing director for Abbey for Intermediaries, bringing out 100 per cent mortgages does not change Abbey’s risk profile in any way. He explains: “There is very much an opportunity for 100 per cent and for good, responsible lending. Undoubtedly, there is a need to get FTBs onto the property ladder and we are confident that with our affordability calculator we can lend appropriately.”
download our news ticker
However, he concedes that while the bulk of the 100 per cent mortgages taken out will be two or three-year deals, he believes three-year deals will give a greater deal of comfort and certainty for borrowers in an ever-changing economic landscape.
Okey adds that a downturn in the economy ‘doesn’t have to translate into cautious lending, just responsible lending for all lenders.
Element of caution
James Cotton, mortgage specialist for London & Country, comments that in recent times, the trend has certainly been for lenders coming into the 100 per cent market, rather than leaving it. He explains: “Alliance & Leicester recently came in and Godiva is certainly backing it. Of course, at this time, there is an element of caution, but a lender like Abbey wouldn’t be pushing into it, if it wasn’t confident about it.
compare mortgages
“Northern Rock is moving back up as a big player and I believe its Together range, which lends up to 125 per cent plays a part in its resurgence. It’s a lot easier for a small market to grow than a fully fledged one and this sort of product has suited the recent climate. It’s not surprising it has grown and as long as it serves a purpose it will continue to do so.”
While lenders have to balance the risk and the opportunity of such lending in less favourable economic times, the need for this product is all too clear for FTBs. With house prices ever on the up, this market looks set to continue to grow as lenders try and help buyers reach the first rung of the ladder.
