Now is not the time for 95% LTV mortgages ‘the only losers will be borrowers’ says Star Letter 05/03/2021

Mortgage Solutions and its sister title Specialist Lending Solutions pick the top comment from our readers each week.

In the article: Brokers give thumbs up to 95% LTV government-backed mortgages garnered a response from Andy Wilson.

He said: “I’m going to be dubious here, but I do not believe now is the time to be promoting 95% mortgages to anyone. 

Despite Covid, house prices have been on the increase over the last year way beyond expectations, for a number of reasons, with the stamp duty holiday particularly being a strong driver. And yet, many of us were predicting that when the holiday ended, we could face house price reductions of some sort as demand fell back.”

The extension to the stamp duty holiday in the Budget will fuel another rush of buyers keen to avoid large stamp duty costs. Demand will fuel continued house price growth.”

However, by the beginning of October, stamp duty will be back to normal i.e. everyone paying it apart from some first-time buyers and the very few who buy below £125,000. 

He continued to say: “Add to this the potential issue with employment issues after Covid, when the furlough scheme ends. I believe many employers are keeping staff on using the furlough scheme, with the firm knowledge that many of them will have to be made redundant as firms fail or have to downsize.” 

Very few employers will be admitting the fragile state of their firms to their employees at this stage. 

 

Negative equity risk  

The failure to get a mortgage because of unemployment will once again fuel a slowdown in demand. Simple economics means that lower demand would further reduce prices. The 95% borrowers would be most at risk of negative equity. said Wilson.

The interest rates on this government supported guarantee scheme will mean costs are higher than for non-scheme borrowing of 90% LTV or less; remortgages will be non-existent and anyone in negative equity may be restricted to getting a product transfers.”

The lenders won’t lose out because of the protection the scheme offers; the only losers will be the borrowers.

If our clients definitely want to take the risk, advisers have a duty to give them a strong warning of what could happen if prices fall – as we should do for higher LTV cases anyway – and this warning needs to be in writing, in bold, and with big capital letters,” he added. 

 

Landlords should sell up by 2026

The second article to receive a comment was: Landlords breathe sigh of relief as Sunak ducks CGT increase for now. 

Paul Barrett said: “This is a fantastic opportunity for landlords to get out of the private rental sector (PRS) at prevailing capital gains tax (CGT) rates. Landlords would be well advised to sell up before 2026. 

Many landlords were thinking of going in five years time anyway so selling one property per year will enable them to leave the private rental sector before the rate increase. 

Barrett added: “The government has effectively given a warning that CGT will increaseilandlords choose to ignore it, that is their lookout.”