The availability of 95% loan-to-value mortgage products for first-time buyers (FTBs) are “really important”, Vibe Specialist Finance director Kim McGinley says.
Speaking on this week’s Lenders Live panel hosted by Knowledge Bank, McGinley says: “It’s a worrying time at the minute, there’s a lot of uncertainty but from an affordability perspective from a lot of FTBs, they do look at the higher loan to value deals.”
This comes following the news last week that Accord Mortgages were returning to 95% LTV lending on residential mortgages.
The product currently on offer is a five-year fixed rate at 6.71%. Accord is the latest lender to look to offer higher LTVs after returning to lending following a temporary withdrawal of products.
Panel host Knowledge Bank founder and chief executive Nicola Firth says: “I don’t think anyone would argue that higher LTV products are much needed for FTBs, who play an important part in fuelling the housing market, but how achievable is it for [them] to attain these high LTV products.”
McGinley comments: “We know that rates have increased significantly. Obviously, affordability is absolutely key at the minute, but conversations need to take place because without these 95% products there are so many that cannot get on the property ladder.”
“While it’s difficult to be tying clients into a certain amount of time, their dream goal is to own a property.”
However, McGinley says if by doing so, and the only way to do that is a 95% LTV mortgage, “it’s down to us as brokers having those very honest conversations to say these are the pros and these are the cons”.
Firth reflects on being a broker during the global economic crisis in 2008 arranging a mortgage for a young couple of FTBs.
She says: “It was a fixed rate for five years at 7.29% and I felt conflicted about whether this was the right thing to do.”
Speaking on if it’s the same situation now, McGinley comments: “It’s not in relation to just high LTV, all rates have gone up so significantly. It’s going to be very interesting to see what happens with the government and the market’s stability and what happens with these rates in the coming weeks. Also, what impact that then has on the current live applications that are out there.”
She adds that it also has a “very big impact” on those people remortgaging.
“Each individual broker is different as to what they’re advising on. But it should be a case-by-case basis and individual scenario to truly grasp a client’s situation, whether to go for tracker rates or fixed rates or, on the affordability. The power as a broker really does come into play.”
Meanwhile, R3 Mortgages director Riz Malik suggests it’s “understandable that lenders are very concerned given the situation with everybody talking about falling house prices”.
However, Malik says it is “very warming” to see many lenders returning to the market, especially at the higher LTVs.
“As confidence increases in the market, [lenders] will return.”
“More conversations will be had, but we can’t change the markets. The markets are going to react. This is what we’ve got in front of us and this is just the whole new world that we’re going to have to talk to our clients about.”
However, rates have been historically low, with a whole generation of FTBs not knowing any different.
Malik says: “The situation is that although everybody was expecting interest rates to rise in 2022, going into 2023 and onwards, nobody expected the shambles that happened over the last few weeks to see them spike up.”
“If interest rates were rising, and it was done on a gradual basis, we could absorb them, we could digest them and we could understand them and learn to live with them. But when this spike has happened, we’re now waiting for things hopefully to calm down. But even if they do calm down, this is the new norm going forward,” he concludes.
