New statistics revealed by AmTrust have shown that product numbers for buyers with smaller deposits have increased across all mortgage options for the first time since the LTV Tracker was introduced.
However, according to the findings, those with smaller deposits continue to pay over 50% more each month than their larger deposit counterparts.
The quarterly AmTrust Mortgage Loan to Value Tracker reviews the average monthly mortgage payments for first-time buyers on average loan levels and compares loans for those with a 5% deposit to those with 25%, and also looks at the product availability for first-timers.
Despite two increases in Bank Base Rate (BBR) over the last 12 months, product pricing has stayed consistent with this quarter’s LTV Tracker showing a significant 34 basis points drop in the average rate for a 95% LTV mortgage.
Average rates for those with a 25% deposit only increased by 1 basis point up to 1.75% this quarter from 1.74% back in July. The rate differential between 75% and 95% LTV loans has therefore narrowed from 2.21% last time to 1.86%, showing a much more competitively-priced high LTV sector than in recent years.
However, first-timers with only a 5% deposit can still expect to pay over 50% more each month for their loans. Those with smaller deposits pay (on average) £821 per month/£9,852 each year, while those with 25% deposits pay (on average) £527 per month/£6,324 per year.
AmTrust believes that, as the year comes to a close, there will be greater competition in the high LTV sector as lenders seek to secure increased business from first-timers and greater margin on their loans. Even with further increases to BBR, product pricing for lower-deposit mortgages may sustain their competitiveness as lenders look to increase business share in this part of the market.
Product numbers continue to fluctuate
Greater lender interest in first-time buyer business is also being reflected strongly within the market, with a growing number of products for both 75% and 95% LTV borrowers.
The AmTrust LTV survey continues to review the number of actual product options available to first-time buyers with either a 5% or 25% deposit based on the price of an average first-time buyer house from UK Finance figures, the price of an average house as outlined by the August 2018 Halifax House Price Index, and the price of a house at the starting tier of stamp duty land tax, £300k. Below this amount first-time buyers do not need to pay any stamp duty.
In order to do this, AmTrust uses one of the online mortgage search engines which include deals available to both mortgage advisers and direct-only.
The latest research shows the first increase in product numbers across all product sectors, both 75% and 95% LTV and two-year and all-term deals, since the establishment of the LTV Tracker.
Two-year product options for 95% LTV have hit three figures for the first time (for those wishing to purchase an average first-time buyer home and the average-priced UK house), while all 75% LTV product numbers also increased.
AmTrust does however point out that the disparity between those with a 25% and 5% deposit is marked with hundreds, often thousands of products targeted at those with larger deposits. It is however encouraged by the greater number of products available to low-deposit borrowers and the falling average costs for this group.
There is however still concern that the single biggest obstacle facing potential first-timers remains saving for a big enough deposit to secure an affordable mortgage, plus product numbers in the 95% LTV range do not necessarily translate into increased levels of mortgage lending to this borrower demographic.
AmTrust continues to urge lenders to use credit-risk mitigants, such as private mortgage insurance, in order to boost their levels of low-deposit mortgages and to continue pushing down the rate differential between high and lower LTV products.
Pad Bamford, Business Development Director at AmTrust Mortgage & Credit, commented: “As we move into, what is traditionally, a very competitive time for the mortgage market there is a lot to be encouraged about in this quarter’s LTV Tracker. Lower average rates translate into lower monthly and annual payments for those borrowers with a 5% deposit, plus the differential between those with a bigger deposit has been narrowed, and we have seen a continued increase in the number of products available to high LTV borrowers.
Such positive movement is, of course, to be welcomed however we are still concerned on a number of fronts. Saving for a deposit remains the biggest barrier to overcome and we are still at a point where many potential first-timers can only get on the housing ladder with the support of the Bank of Mum and Dad. While product numbers have moved upwards for high LTV borrowers, compared to those available at 75% LTV, they are but a drop in the ocean.
It means that, not only do first-timers have to save a significant deposit in order to find more product options but they might not meet the affordability criteria – even if they have a 5% deposit – because the monthly mortgage cost is that much more.
Government support to first-timers has improved, with cuts to stamp duty and the ongoing extension of the Help to Buy Scheme, but at some point the market has to stand on its own two feet and if lenders were able to use tools such as private mortgage insurance to mitigate their risk, not only would they be able to offer more product choice but they could bring pricing down closer to the levels that those borrowers with bigger deposits benefit from.”