So I listened with particular intent last week to a phone-in programme on Radio 5 Live. The debate centred around this topic, whether we would ever see a return to 100% lending and the situation many people who’ve borrowed at above 80% over the last couple of years now find themselves in.
Understandably, many contributors believed that continuing to lend at high LTVs when much has been made in the press about Northern Rock continuing to lend to “tricky” customers on their Together mortgage for some months after their government bail-out, I suppose the natural reaction would be away from such risk in future.
But while I am inclined to agree that lending should certainly be restricted to somewhat lower LTV levels, what are we to do about those who borrowed at, say, 90%-plus and who now find themselves coming off their deals?
These clients have almost nowhere to go, apart from their existing lender. And these lenders know it. Such clients have to go onto SVR – which at the moment is admittedly not a bad option – or are being offered rates which are extremely unattractive relative to the rest of the market at present.
Of course, many will argue that these clients should never have been encouraged to borrow in the first place and that the deals they are being offered now reflect their risk profile far more accurately than those they have come off.
But this is not helping them now. House prices are, as we are all painfully aware, dropping, and this is another factor which these clients and their lenders face. If you were at 80% two years ago, you are pretty likely to be at almost 100% now.
What can be done then? At the moment it seems that no lender is able to proffer a solution, even for their own customers. This means we will see ever increasing arrears and repossessions happening over the next year or two.
Most borrowers in this situation want to keep their own homes. Few of them would consider moving.
So what if lenders offered them five-year deals at about 5% with no portability options as Mortgage Strategy and the Liberal Democrats have previously suggested? Or with a short overhanging early repayment charge period, say, one year?
As ever, I will reiterate that I am not an economist or a risk analyst, but I feel confident that those lenders who look after their borrowers through this difficult time will find themselves rewarded with customer loyalty – and I am sure this could be made to be cost effective.
New borrowers would still face the problem of finding a deposit and that, I think, is probably right. We can’t afford the risk in future. But at least existing borrowers would be handed a branch to cling onto in these stormy times.