Anyone reading about high LTV mortgage products coming on to the market could be forgiven for thinking lenders were reopening the financial taps.
But in truth, an increase in high LTV products is little more than window dressing.
The number of 90% LTV mortgages has more than doubled in the past two years, with 190 such products available today.
In fact, Clydesdale Bank, Nationwide and Skipton Building Society have all begun selling mortgages of up to 95% LTV in the past several weeks.
On the face of it this seems like great news for prospective buyers, but what matters to borrowers is whether these products are actually available.
Product numbers are an imperfect measure of the health of the mortgage lending industry and property market as they say nothing about how easy it is to secure finance.
It’s impossible to draw conclusions about the pace of mortgage lending without keeping an eye on gross and net lending statistics. According to the Council of Mortgage Lenders, gross lending for Q4 2009 was £41.2bn and by Q4 2010 had dropped to £36.8bn.
The Bank of England’s latest housing equity withdrawal figures show lenders effectively absorbed £7bn from the property market in Q4 2010.
It should therefore come as no surprise that the rise in high LTV products hasn’t had much impact on the property market.
The LSL/Acadametrics house price index indicates prices rose by only 0.9% in the year up to April 2011. With inflation at 4.5%, property owners are seeing the value of their assets fall in real terms with alarming speed.
It seems a doubling of high LTV products has done little to boost property prices or mortgage lending. High LTV products are a flashy way to grab the limelight and give hope to first-time buyers, but they are also misleading. While it’s true that average LTVs are going up, the rises in the past year have been minimal.
E.surv’s mortgage monitor shows that since the beginning of 2011, the average LTV has risen from 58.9% to 61% hardly a revolution in lending.
Lending criteria remains tight and grabbing headlines by offering large numbers of high LTV products is understandable, given that lenders are under pressure to raise the amount they are willing to give first-time buyers.
But talking up an impending flood of finance is creating a false picture of the mortgage market and unnecessarily leading to a belief among buyers with small deposits that high LTV mortgages are becoming common again.
Few if any of the high LTV deals come with relaxed criteria. Buyers who believe the hype about high LTV lending will meet the same disappointment as those who listen to the hype about the English football team. The promise is great, but the delivery is something else entirely.