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Leader: Caution on 100% LTV lending

Higher-LTV mortgages – 95 per cent LTV in particular – almost ceased to exist immediately after the financial crisis, with lenders pulling back heavily on lending.

But two years ago that changed. The introduction of the Help to Buy scheme catapulted 95 per cent LTV lending back into the mainstream; before then, these products were the preserve of a selection of smaller building societies.

Now there are rumblings that lenders are willing to go one step further – by offering 100 per cent LTV.

Brokers have told Mortgage Strategy that some smaller lenders are looking at launching such deals. Since the crisis, the number of 100 per cent LTV deals has plummeted from around 240 to just seven today. And even then, these are not ‘straight’ 100 per cent LTV products as they require a family member to act as a guarantor in case the borrower defaults on their repayments.

With the increased amount of capital that lenders have to set aside for higher-LTV loans, these would come at a premium. But brokers argue that since the MMR requires lenders to ensure borrowers can afford their loan, these products should be offered so long as this is achieved.

However, that is too simplistic. When a borrower uses their hard-earned cash to put down a deposit, they are quite literally invested in that property. Without such an investment, they are essentially renting and the drive to keep up repayments is potentially weakened.

It is unlikely that 100 per cent LTV products will become as popular as they once were any time soon, and one can argue that they never should. 

If lenders really want to help out borrowers, they should look at creating more options at 95 per cent LTV.



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