The number of mortgage products available with a 95% loan-to-value (LTV) ratio continues to fall in the UK. Young professionals are increasingly being priced out of the property market as lenders seek to tighten their belts by removing themselves from the 5% mortgage marketplace entirely.
Some reports have suggested that the number of 5% mortgage deals available to British first-time buyers is as low as 12, down from as many as 390+ in March 2020. You don’t need to be a rocket scientist to figure out why lenders have adopted this stance recently, given the health and economic landscape, but given that the Bank of England’s interest rates are at historically low levels it seems the ideal opportunity to continue taking the risk on first-time buyers.
There are even reports of some high-street banks opting to restrict sales of their 90% LTV mortgage products, with HSBC the latest to “temporarily reserve” these deals in favor of focusing on its products for 85% LTV or lower. Nationwide has also sought to impose new conditions on the terms of its low-deposit mortgages, with the headline condition being that maximum repayment terms of just 25 years make the monthly repayments even more expensive than usual for first-time buyers.
HSBC UK’s head of buying a home, Michelle Andrews, insisted that the bank’s decision to limit its off-the-shelf mortgage products is one they would be “reviewing regularly”. Given that the low-deposit mortgage marketplace is likely to remain a fast-moving one for the foreseeable future, it’s important to keep your fingers firmly on the pulse for the best available rates. Trussle compares up to 12,000 mortgage deals across the UK, with its comparison tool allowing users to set their prospective LTV rates, initial fixed periods, and term lengths before filtering by monthly payments, total fees, or the true cost of the product. With the number of mortgages typically on offer, this comparison service is a useful tool for first-time buyers looking to find their ideal mortgage.
As lending conditions tighten, borrowers also have to take into account the lengthening approval times for mortgage applications. Furthermore, mortgage valuation surveys are increasingly feeling like a lucky dip for first-time buyers, with some valuers reportedly coming in as much as £150,000 below some purchase prices.
The main saving grace for English first-time buyers remains the Help-to-Buy government scheme. It is said to have assisted upwards of 275,000 buyers to get on the property ladder with a 5% deposit. Those looking to buy outside of London can receive 20% from the government in the form of an equity loan and borrow the remaining 75% from a mortgage lender on a repayment basis. The scheme is weighted somewhat differently for those looking to buy in the English capital. The government is willing to lend 40% to London buyers with a 5% deposit, with a 55% mortgage required from a lender, also on a repayment basis.
However, this scheme is due to expire at the end of March 2021. An iteration of the scheme will be used in its place from April 2021 until April 2023, focused largely on first-time buyers wishing to buy new-build properties. From next April, regional price caps are also scheduled to be introduced which will put a ceiling on the maximum value of properties that can be acquired via the rebranded Equity Loan Scheme.