Economic tracker - November
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Nationwide recently returned its 90% LTV mortgages to the mass market with three and five-year fixed rates now available to first-time buyers and home movers. Together with other lenders operating in this market it’s good news for those struggling to raise a deposit and also for the wider economy as it may lubricate the housing market.
Return of high LTV deals good for market
Ian Andrew MD, Group Intermediary Sales Nationwide
Prior to the credit crunch, nobody thought too much about LTVs. Rates didn’t increase in line with LTVs and it was common for buyers to pay a deposit of 5% or less.
In April 2005, 27% of buyers took out a mortgage with an LTV of over 91%. In March 2007, 43% of home buyers took a mortgage with an LTV of over 86%.
Of course, when the recession hit, high LTVs became scarce and by June 2009 only 13% of house purchase mortgages were at 86% LTV or more.
During the recession, 95%-plus LTV deals were the first to go, due to the additional risk and funding costs associated with such loans. As a result 90% LTV saw a brief rise in popularity - in February 2010 11% of mortgages carried an LTV of 86% to 90%, whereas 91%-plus LTV numbers had dropped to just 1%.
Since then the demand for, and availability of, 90% LTV mortgages increased to their current level of 17%, while those at 95% have remained at 1%.
Data clearly shows that the market is starting to normalise. There are more 90% deals available, lending criteria is becoming more flexible and rates are starting to come down.
According to Moneyfacts.co.uk, at their peak in 2008 a two-year fixed rate deal carried an average rate of 7.08%, but a buyer taking out a similar deal today can expect a rate of 5.35%.
The availability of a wide range of mortgage products suitable for different requirements is key to a healthy market. Clearly, we should still encourage borrowers to save as much as they can and turn this into an appropriate deposit.
However, it is helpful that we re now seeing a wider range of mortgage deals in the market, so intermediaries can find the best fit for their clients.
Help the young fulfil ownership dreams
Andrew Baddeley-Chappell, Head of mortgage strategy and policy, Nationwide
Despite the troubles in the eurozone and wider economic difficulties, Britain’s love affair with property shows no signs of weakening, particularly among young people. Latest research suggests eight in 10 people between the ages of 18 and 24 want to buy a home before they reach the age of 30.
This is in spite of the challenges they face. But there are solutions and we are helping them achieve their dream, with one in four of all our mortgages last year being for first-time buyers.
Additionally, shared ownership and shared equity schemes are options for some first-time buyers. We complete on thousands of such deals each year, of which two-thirds are a government scheme.
This includes FirstBuy, launched in September, which is available on all our standard products. The Mortgage Works, our intermediary brand, also provides guarantor mortgages for those able to access family support.
We also know that purchasing their first home can be a daunting prospect for buyers, but we help them through every stage of the process with a guide. It includes information about researching properties, choosing a mortgage and making an offer on a property.
The launch of this guide follows calls by Sharon Bowles MEP for such a guide to be given to all first-time buyers.
She has called for the guides need to be provided on a compulsory basis rather than voluntarily as is the case now.
The first-time buyer guide is proving to be popular among brokers, with it being accessed by more than 125,000 advisers and their clients since its launch in October.
As you would expect, this is not the end of the journey and we aim to extend the dream of owning a home, showing even more borrowers that we are on their side.
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