Guest blog: High LTV mortgages required more than ever for first-time buyers

Patrick Bamford from Qualis Credit Risk, on the importance of a strong private mortgage insurance sector, and a building society community who understands it, and is willing to use it, in order to offer high LTV mortgages.

By Patrick Bamford, Head of International Business Development at Qualis Credit Risk, part of AmTrust International

In the first couple of months of 2024 it appeared as if the Government were about to announce new measures designed to support first-time buyers onto the housing ladder, however by the time the Budget took place, the ‘fiscal headroom’ required for such policies appeared to have narrowed considerably.

Thus, talk of Government-backed 99% LTV mortgages was just talk – seemingly scuppered by concerns amongst lenders of greater defaults emanating out of such products and the borrowers who might have taken them. 

However, the lack of a Government scheme did not mean a lack of 99% LTV mortgages entirely, with Yorkshire Building Society quick off the blocks in launching its range for first-time buyers which offered products for those with a £5k deposit up to a maximum loan level of £500k.

All good news, and in my view, it should be the industry leading the way with products and schemes to help first-time buyers. However, the market – particularly for higher LTV products – could do with some further support, and it was interesting to read the BSA’s own first-time buyer report which outlined what might be done. 

Of particular interest was its view that the 15% cap on lending above 4.5 times income has ‘limited the use of higher loan-to-value mortgages in more expensive housing markets’ and how it calls on the FPC to review ‘whether it would be beneficial to adjust the limit and to target mortgages above the cap at first-time buyers’.

The BSA also argues that the move to focus on financial stability, particularly over the last decade, has ‘had an inevitable cost, with many excluded from home ownership – particularly those with single incomes, lower than average incomes, or unstable incomes, and with less wealth’. 

There has been a recovery in the number of first-time buyer completions but those using 90%-plus LTV mortgages in order to do so has ‘remained depressed compared to prior to the financial crisis’. 

The report seems to question whether a new balance is now required, one perhaps not so strict in terms of those lending caps, plus one that does give lenders such as building societies the opportunity to be more innovative in their product offering, as we have seen with the Yorkshire’s foray into 99% LTV mortgages. 

Of course, the building society sector has often been at the forefront in terms of looking at the ways and means by which it can support first-timers into their first home, whether through guarantor mortgages, family support products, taking into account monthly rental payments when determining affordability, coupled with a willingness to take part in schemes such as Deposit Unlock and Own New in the new-build space.

It has also been willing and able to look at the traditional method by which the vast majority of first-timers have historically bought a property, via the provision of high LTV mortgages, and has remained committed to offering such products. 

We would argue that, coupled with the shift the BSA seem to be calling for, greater use of private mortgage indemnity insurance will help not just reduce the risk to the lender, but potentially provide them with greater confidence to push the envelope even further in terms of their first-time buyer/high LTV mortgage proposition. 

There’s no doubt that this offering is in great demand, and the sector can always use more products at high LTVs. Needless to say, with house prices at current levels - and the likelihood that the demand/supply imbalance will continue to move them upwards – one of the biggest challenges for would-be buyers comes in trying to save up for a deposit. 

This is particularly difficult in an economic environment where rental costs continue to increase, the cost of living is high, wage inflation has not kept pace with the inflation of rents or living costs like energy/travel, etc, and where a 10% deposit is likely to require £20k-plus, based on average house prices.

Being able to access 95% LTV mortgages is therefore crucial and critical for a large number of wannabe purchasers, and I’m glad to report that we have a growing number of lenders and product in this space. But we could always have more. 

As mentioned, there is a risk here, but it can be mitigated via private mortgage insurance. After all, this is a vitally important demographic that needs supporting. The Government Guarantee Scheme is due to finish at the end of 2024, and while it has been an important part of the high LTV space, building society lenders are unlikely to be involved, finding it an inflexible and costly way of mitigating the perceived risk of high LTV lending. Which is why they have opted for the private alternative.

In a very true sense, it is important we have a strong private mortgage insurance sector, and a building society community who understands it, who requires it, and is willing to use it in order to offer high LTV mortgages, but at the same time ensure they are not taking an undue risk in offering these products. 

Options abound for building societies in this sector, but I would suggest it is as important to shop around here, as it is for consumers to do similar when weighing up their high LTV mortgage options. 

The positive is that the demand for these products is not going away; indeed, it is getting stronger, given that property valuations are on the rise, and the deposit hurdle remains a big barrier to purchase. High LTV mortgages have been required for many generations – it is important that we can continue to provide them for all those that come next.

Patrick Bamford is Head of International Business Development at Qualis Credit Risk, part of AmTrust International

Qualis Credit Risk provide mortgage indemnity insurance solutions to building societies, banks and other financial institutions to deliver risk mitigation products. The team at Qualis has significant experience within the specialist area of mortgage and credit risk. Our experience dates back to 1993 in the UK therefore through many economic cycles, including the Global financial crisis. Our core strengths include lender due diligence, risk-surveillance and post-underwriting audits . We have a long history of profitable underwriting and as a recognised market leading claims handler. We have a flexible approach adapted to the lender requirements.

The views, opinions and positions expressed within guest blogs are those of the authors and do not necessarily represent those of the BSA.

You may also be interested in...

BSA Card
  • BSA.Event Event
  • Conduct Risk & Regulation

Consumer Duty: Navigating Board Reports

A free webinar hosted by BSA Associate, docStribute docStribute and Woodhurst are collaborating to bring you this webinar series. Following our pre...

BSA Card
  • BSA.Event Event

Building Societies Annual Conference 2024

Building Societies Annual Conference 2024 8th -9th May, Manchester   The Building Societies Annual Conference is the leading event in the secto...

BSA Card
  • BSA.Event Event
  • Audit & Taxation

Audit, Risk & Regulation Autumn Series

This year's annual update returned in a brand new format with a series of topical webinars covering key areas of audit, risk and regulation. This...

BSA Card
  • BSA.Event Event
  • Conduct Risk & Regulation

Consumer Duty: Linking Customer Outcomes to Customer Experience

A free webinar hosted by BSA Associate, Protiviti This webinar will explore ways firms can effectively test, monitor, and report customer outcomes ...

BSA Card
  • BSA.Event Event
  • Conduct Risk & Regulation

Annual Update & Networking for Boards

This autumn, the BSA is running its first event designed specifically for Board Members (Exec and Non-Exec) and Board attendees. This in-person eve...

BSA Card
  • BSA.Event Event
  • Conduct Risk & Regulation

BDO's Financial Services' NED event: Consumer Duty Board Champions

BDO’s Financial Services’ team is delighted to invite you to our first FS NED event for 2024, to discuss the Consumer Duty’s ("the CD") next phase of ...

BSA Card
  • BSA.Event Event
  • Prudential Regulation

Preparing for successful regulatory visits

Two half-day sessions on 24 & 25 January 2024

  • BSA.IndustryResponse Industry Response
  • Conduct Risk & Regulation

GC23-2 FCA Guidance consultation on financial promotions on social media

Our response to FCA GC23-2

BSA Card
  • BSA.PressRelease Press Release

The beauty of simplicity in a complex world

Speaking on the first day of the Building Societies 2023 Annual Conference at the ACC in Liverpool, BSA Chief Executive, Robin Fieth, talked about the...