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Let’s step forward to good old days

The end of high LTV loans makes it harder for many to get onto the housing ladder. But the discipline of having to save up for a deposit may help the market, says Mark Harris

So it’s farewell to the high LTV mortgage. It was popular while it lasted, helping thousands of first-time buyers with no savings onto the housing ladder. But now it looks like we’re back where we started – having to save hard for deposits.

Several lenders jumped onto the bandwagon and pulled out of the 100%-plus LTV market within hours of each other.

Others ditched their 100% LTV deals, while some firms decided that lending above 90% was suddenly too big a risk.

While the end of high LTV loans is tough for those with little or no deposit, is it really that dreadful a development?

While the housing market enjoyed double digit growth, high LTV mortgages were less of a risk because house prices were spiralling.

The expectation was that by the time borrowers came to remortgage, the smaller LTVs delivered by higher prices would enable them to shop around for competitive rates.

But the days of double digit growth are over. Growth has slowed, with prices falling in some areas. But this correction was long overdue.

Part of the reason why first-time buyers were forced to take out high LTVs in the first place is that prices have soared while incomes have risen more modestly. So a correction in pricing – not a crash – will bring some realism back to the market.

While the present situation is bad news for those who require high LTVs, it’s good news for those who are prepared to take the time to save up deposits.

In the past, the danger of waiting was that house prices would rise even further in the meantime but this is less likely now. I had to save up for a deposit as did most of my contemporaries, and it didn’t do us any harm.

There must be more realism about what’s achievable. The advantage of low-er LTVs is that consumers get a better rate of interest, more choice and can avoid the dreaded higher lending charges that some lenders still insist on imposing.

There also needs to be more innovation from lenders – not in terms of higher LTV products but more towards helping first-time buyers with better designed products and further use of stepped rates.

An increasing number of parents will undoubtedly be called upon to help fund their children’s deposits. But a return to how things were done in the old days might be a step forwards for the market, not backwards.


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