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George Osborne concern over lack of 95% LTV mortgages

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Chancellor George Osborne says the lack of 95 per cent loan to value mortgages is a “social problem” as he launched a fierce defence of the Help to Buy scheme and high loan-to-value deals.

Speaking in London today, Osborne said the housing market was not working effectively, given house prices are down by a quarter from their peak and mortgage availability is running at only half pre-crisis levels.

He said: “That is why the Government’s Help to Buy scheme is a sensible, time-limited and necessary financial intervention to fix a specific financial problem: the dramatic reduction in the availability of high LTV mortgages.

“The median LTV for first-time buyers has fallen from a long term average of 90 per cent to just 80 per cent now.

“This change is not something we should welcome, it is both a market failure and a social problem – imagine if you’d had to find twice as big a deposit for your first home.

“90 per cent and 95 per cent LTV mortgages are not exotic weapons of financial mass destruction. They are a regular part of a healthy mortgage market and an aspirational society.”

The scheme has come under fierce criticism over fears it may fuel another housing boom and artificially boost prices.

Osborne said it is important all Help to Buy deals are repayment mortgages and not interest-only, which he says will allow borrowers to build up equity irrespective of price growth.

He also claimed high LTV deals are crucial to boosting housing supply and argues Help to Buy will cause a major boost to building.

Osborne also said the economy is “turning the corner” and his fiscal plans had worked while dismissing claims the recovery is built on house price growth and consumer spending.

He praised the launch of TSB Bank on the high street today, claiming the Government has overseen the biggest ever overhaul of banking.

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  • Dan McGeehan 13th September 2013 at 11:09 am

    Expanding 95% borrowing to more first time buyers but limiting the loan amount to around 100-150k would be a welcome boost to FTB’s in the majority of areas. I do not think we should go back to 95% on a £400,000 flat in London for example. Underwriting especially in building societies has moved back to a more manual based where affordability is properly checked with 3-6 months bank statements for high LTV borrowing.

  • Grey Haired Underwriter 11th September 2013 at 4:20 pm

    For you youngsters in the market I would point out that 95% mortgages have been available since the 1970’s and were readily available with an indemnity. For a long time an indemnity was a way for the insurance inductry to get money for old rope and it was only the property price crash of the early ’90s that caused most insurers to leave the market.

    It seems to me that there is an awful lot of hand wringing going on about a relatively limited problem. Average lender arrears (for a responsible lender) are running at about 1.5% of the book or in simple terms 99.5% of all borrowers are good borrowers. The issue that causes most arrears problems is unemployment but we have nowhere near the level of people out of work that we had in 1992,3 and 4.

    I would happily lend 95% to the right applicants (and credit scoring is extremely weak when it come to high LTV loans (Anon 4.55).

    Don’t forget that FTBs are competing hard with BTL investors for properties at the bottom of the market as it – why make it more dificult for them?

  • bobby 11th September 2013 at 8:13 am

    A 95% mortgage will be reducing all the time as it will have to be on a repayment basis now and not interest only pre 2008. 95% mortgages have never been a problem, historically or responsible for the financial crisis in any way, shape or form. Get your facts right before posting ill informed and ignorant comments.

  • Tom Cleary 10th September 2013 at 5:32 pm

    I can’t believe that after the amount of press that has clearly documented the minutae of the causes of the credit crunch and subsequent global recession, that people still think that lending 95% residential mortgages in the UK were the root cause!? Seriously, read a book!

  • sam memour 10th September 2013 at 4:55 pm

    Nothing wrong with 95% if the market is stable but need to be at realistic rates without the need to massage them down and then slap a high fee to be added to the loan taking it over 95%.

    I would even support a return to 100% mortgages for high credit scoring customers and only on a repayment basis.

    As much as the previous loose lending fuelled the market, the pendulum swung back too far and has harmed the economy.

    About time George Osbourne was given some credit for sticking up for ordinary folk. The rich don’t need 95%, its the ordinary person that has been priced out of the market.

    If the market repairs, a 95% mortgage will not be 95% for very long, but it might help those paying extortionate rents to get onto the housing ladder and share in the recovery.

    Quite a socialist point of view really, how strange politics can be !

  • Tony 10th September 2013 at 1:45 pm

    95% Mortgages should be a niche product.

    There are situations where they should be available – eg people who have maybe had to move for work and are paying substantial amounts in rent and will struggle to save a deposit – but in general affordability is still good.

    They should not be for the average person who just havnt saved a deposit. 90% mortgages are more then enough.

    Im only in my mid-late 20s. I had to save up and move slightly out of the area to be able to get a house i was happy with.

    95% should not be the norm and the government should not be backing these mortgages! Let the market sort itself out – it will do… and yes i am a broker.

  • Chris 10th September 2013 at 9:47 am

    Sorry John, I have to disagree with you on that one. 95% mortgages are not toxic lending or timebombs waiting to go off. As I’m sure you are aware LTV is not the only risk factor involved in lending. If people have stable jobs and have borrowed at an affordable level for their income there wouldn’t be an issue. Even at a very modest rate of property inflation all would be well. In fact 95% lending was standard practice going back to at least 1991 when I bought my first house with a 95% mortgage. I managed to save my £1500.00 deposit from my wages of £9000 and my £28500 mortgage was affordable. With my stable job, If house prices went up or down I still had an affordable roof over my head and my mortgage was always paid. From a lenders point of view if a customer is in stable employment and have an affordable mortgage they could drop into negative equity for a while, still pay the mortgage and no loss would be realised. Those who focus too much on equity miss the entire picture of borrowing and lending. Personally I’d rather lend 95% to someone in their job for 20 years, lived at the same address for donkeys years, borrowing 2 times their salary than 80% to someone who started their job 6 months ago, has been given a large deposit by their parents and wants 5 times their income. I don’t want to be repossessing the latter in 12 months time when he’s lost his 5th job in the last 2years.

  • John Corey 9th September 2013 at 4:37 pm

    The logic is flawed. 95% mortgages are an indication of toxic lending rather than a desired norm.

    While FTBs might struggle with a deposit, the LTV should be 80% or lower if you want lenders to take on reasonable risk.

    As a government, it can fund the difference through either of the schemes. That is the government pushing a social agenda and not fixing a broken lending market.

    If we had 15% inflation or higher, then a high LTV loan might be safer after 1-2 years. With low inflation, the borrower has to have real cash in the deal rather than expect a bank to shoulder all the risk.

    As the credit crunch proved, high LTV loans are a time bomb waiting to blow up. Better to keep people in rental accommodation or find other means to deal with the situation vs. forcing the banks to roll the dice. Taxpayers do not want to bail out the banks a second time.

  • terry 9th September 2013 at 2:50 pm

    Lack of joined up thinking by the two governments running this country. The elected government and the non elected government the FSA(now FCA). The elected government wanting the lenders to give bigger mortgages and the FCA wanting the lenders to increase their capital base. There is only one lot of money in the pot, so they cant both have it their own way.