Until lenders return to higher LRVs, housing market will remain beyond many; says Patrick Bamford

Traditionally high loan to value (LTV) lending did include a 95% LTV but it appears to be an acceptance in the market that when advisers and clients ask lenders, ‘How high?’, the answer is a adament, “90%”.

There are however currently five 95% LTV products available in the market but these all come with criteria forewarnings and are what we would safely now believe to be specialist mortgages requiring either parental or guarantor support to access.

However, we have seen rising numbers in the 90% LTV product,  in January – according to Moneyfacts product numbers were up by 88 to 248 products, which is already shows a 386% increase since October last year.

This is truely a big positive sign but it is still nowhere near the levels seen pre-pandemic and respectively during 2019, when in many months over 700 products were available at this level, and there was a much healthier market at 95% LTV.


Many priced out

Product numbers do not make a market, and while it helps to have more options at high LTV levels, there is still a mountain to climb for many people in securing a 10% deposit and meeting the affordability criteria to get a mortgage.

Research from Benham and Reeves suggests affordability is at its worst level in a decade.

It gets to this figure by looking at the average house price to income ratio; currently the average house price in the UK is £250,000, and the average net salary is just over £25,000, which means house price to income affordability is 9.94.

In other words, the average house costs nearly 10 times the average salary, and it would take an entire year saving every single penny of that salary to make the 10 per cent deposit required to even think of getting a mortgage.

Given this will be impossible for almost everyone, realistically individuals would need to put away 20% of their salary every year to have the deposit required in five years.

And who knows what house prices might be in five years’ time.


Lenders remain cautious

It is perhaps understandable why many potential homeowners are crying out for more options at 95% LTV and why we need far more products which do not require help from families.

And you often wonder why we need to make five per cent jumps, given there is nothing to stop lenders inching up the LTV curve?

Understandably, after the year that has passed, there will be an air of caution from lenders however there is clearly a competitive market to be accessed here.

By utilising private insurance to de-risk, this can give an opportunity to offer products at the higher range, with rates not beyond the pale, and the ability to secure a healthy margin.

Even with the recent slight drops in house prices, the market is beyond the range of many – particularly first-timers.

This will not change in any real way unless lenders can see a way to returning to higher LTV product options.

The opportunity is there for quality high LTV business; it’s been done for a generation and it’s badly needed by this new one to get on the ladder.