Getting on the property ladder has never been all that easy for first-time buyers, and things have certainly not got any easier.
Growing economic uncertainty relating to both Covid-19 and Brexit is prompting lenders to tighten their purse strings, with first-time buyers mainly bearing the brunt with over a 1,000 high LTV products removed from the market.
Optimistic
Even though the news from Moneyfacts paints a challenging picture, I’m more optimistic about what the future holds and believe high LTV loans will make a comeback in 2021.
Currently, for first-time buyers who aren’t using Help to Buy or a shared ownership scheme, there are a limited number of lenders who would be willing to provide them with a mortgage deal over 85% LTV.
Even where there are deals available on the market, rates are increasing, criteria more stringent and fix terms in the main are limited to five years plus.
Essentially, you have to be in the best financial position possible to be able to secure a deal with these lenders and willing to fix your rate for longer than you might have intended, but it does provide a glimmer of hope for those prospective homebuyers who can tick all the boxes.
No to Bank of Mum and Dad
However, with this glimmer of hope, comes a downside, and that’s the trend for lenders to shun the Bank of Mum and Dad.
First was Nationwide, which set a new condition that first-time buyers must save at least 75% of their mortgage deposit themselves, with only a quarter at most coming from parental donations – regardless of their ability to afford the repayments.
This measure was followed closely by Lloyds withdrawing their ‘Lend a Hand’ mortgage for new applicants.
A form of guarantor or family offset mortgage, this loan allowed parents to put down a 10% deposit temporarily (three years) and get their money back at the end – with 2.94% interest to boot.
This type of deal enabled buyers to get a 100% mortgage effectively, deposit-free. The assumption was that house price increases over that time would make this ‘everybody wins’ arrangement possible.
However, with more uncertain times ahead, Lloyds scrapping this scheme essentially plays into the fact that the current price rises we see in the housing market could slow or halt altogether.
On a more positive note, first-time buyers who are using a shared ownership scheme or Help to Buy are being supported by lenders. There is massive support for mortgages through the shared ownership scheme, mainly from building societies who want to attract a younger demographic of customers.
There is also less risk to the lender when it comes to giving someone a mortgage through these schemes.
New additions
More potentially positive signs, over the past few weeks, we’ve seen lenders dip in and out of high LTV mortgages. Lenders such as Coventry Building Society and Accord added high LTV loans, then removed them from the market.
The decision to withdraw the new deals was mainly down to capacity issues and demand rather than a decision around risk. From this, we can see that lenders are keen to reintroduce these low deposit mortgages, however, are still struggling with capacity in terms of staff members and system capabilities, alongside unprecedented levels of demand.
With so many sources of first-time buyer deals now unavailable, what can first-time buyers do? Well, regarding deposits gifted by parents, there are plenty of other lenders who will still accept deposits gifted by parents.
Family support options
There are also guarantor mortgages; family offset mortgages and family deposit mortgages still available despite the Lloyds decision.
We also expect lenders to keep dipping in and out of the 90% mortgage market, it’s just about getting them at the right time, as they can come and go in a flash.
It’s worth noting that not every deal is available on the open market, however, as some can only be accessed exclusively via mortgage brokers.
For anyone wanting to get some advice on how to get a mortgage, then my tip would be to speak to a highly rated fee-free mortgage broker about your circumstances.
While high LTV mortgages are few and far between at the moment, I do think they will make a comeback as the months go on.
First-time buyers must be supported through these uncertain times, and despite the doom and gloom, if you do have a decent enough deposit, a stable income with certainty about future employment and you are actively looking to move, then taking the step to homeownership should be within your reach. Speaking to a reputable fee-free broker about your circumstances should be your first point of call.
Richard Hayes is CEO and co-founder of free online broker, Mojo Mortgages
