AmTrust Mortgage Loan to Value (LTV) Tracker
11 October 2017
95% LTV mortgage borrowers still paying over two-thirds more than 75% LTV counterparts
- Average rates drop slightly but lenders already beginning to increase pricing in reaction to higher swap rates and expectation of Bank Base Rate increase.
- Slight narrowing of rate differential between 75% and 95% LTV products.
- Real product availability improves at 95% LTV for those looking for larger loans.
Average product rates on 75% and 95% LTV mortgages for first-time buyers edged down over the summer however those borrowers with 5% deposits are still paying over two-thirds more than their 25% deposit counterparts, according to the findings from the latest quarterly AmTrust Mortgage Loan to Value (LTV) Tracker.
Coupled with the far greater costs of servicing a mortgage, product choice for 95% LTV borrowers is considerably less than for those wanting 75% LTV loans; however it has improved for those first-timers who need larger loans.
The AmTrust Mortgage Loan to Value (LTV) Tracker reviews the average monthly mortgage payments for first-time buyers on average loan levels, comparing loans for those with a 5% deposit to those with 25%, and looks at the product availability for those first-timers.
While average fixed-rates for 75% and 95% LTV mortgages tracked down over the summer, according to Bank of England data, in recent weeks a number of lenders have begun to inch prices upwards with speculation that the Bank’s Monetary Policy Committee could raise Bank Base Rate (BBR) as early as November.
AmTrust’s research reveals that the average loan required by first-time buyers has gone up since the last quarterly tracker – up to £122,647 for those with 25% deposit, and £155,353 for those with a 5% deposit.
With average rates of 1.42% for 75% LTV loans, and 4.02% for 95% loans, this means that high LTV first-time buyers will pay 68.9% more than those with bigger deposits - £821pcm compared to £486pcm, or £9,852 compared to £5832 annually.
This is despite the monthly and annual mortgage costs for 95% LTV mortgages decreasing slightly since the Q2 tracker was released.
Table 1: Average monthly repayments: 75% LTV mortgages and 95% LTV mortgages
|
|
75% LTV mortgage |
95% LTV mortgage |
Difference 75%-95% |
|
Deposit |
£40,882 |
£8,176 |
£32,706 |
|
Loan |
£122,647 |
£155,353 |
|
|
Interest rate August 2017 (average) |
1.42% (1.49%) |
4.02% (4.19%) |
2.6% (2.7%) |
|
Monthly fixed payment (two years) |
£486 (£482) |
£821 (£823) |
68.9% (70.7%) |
|
Annual payment |
£5,832 (£5,784) |
£9,852 (£9,876 |
68.9% (70.7%) |
Source: AmTrust Mortgage & Credit, Money Saving Expert, UK Finance, Bank of England
Figures in brackets – Q2 LTV Tracker results.
*Based on an average first-time buyer house price of £163,529 (UK Finance – July 2017)
AmTrust believes that while pricing for 95% LTV products may have dropped slightly during the summer – from 4.19% to 4.02% - all indicators suggest it will begin to move upwards again as lenders anticipate a BBR rise, plus the market has also seen a significant increase in swap rates over recent weeks.
The likelihood is, that as house prices continue to move upwards, first-timers will need to find both bigger deposits and take out bigger loans in order to get onto the property ladder.
Better news for larger loan high LTV first-time borrowers
This iteration of the AmTrust LTV survey continues to review the number of actual product options available to first-time buyers with either a 5% or 25% deposit based on the price of an average first-time buyer house, the price of an average house as outlined by the August 2017 Halifax House Price Index, and the price of a house at the top of the first tier of stamp duty land tax.
In order to do this, AmTrust uses one of the online mortgage search engines which include deals available to both mortgage advisers and direct-only.
The research revealed that for the first time since AmTrust began reviewing product numbers for these three scenarios, those wanting to purchase properties valued at the average UK house price (£222,293) have seen a significant increase in the number available to them.
Back in July, those with a 5% deposit and looking for a two-year deal across all product types had just one product available to them - this has now increased to 59 products; similarly, those looking at all terms and all deals now have 150 product options, compared to just five in July.
However, those first-time buyers who want to purchase a property at the average first-time buyer price with only a 5% deposit, still find themselves with very few products to choose from. There continues to be only one two-year product (all deals) available and a slight increase from five to six products (across all terms and deals). Again, compared to the hundreds of products available for those with a 25% deposit, AmTrust believes lenders continue to aim their first-time buyer products at either those with larger deposits, or those looking to purchase homes more expensive than the average first-timer properties across the UK.
Those wanting to purchase homes £200k-plus, with the luxury of a 25% deposit, still find themselves with hundreds, if not thousands, of products to choose from.
Table 2: Number of products currently available at 75% and 95% LTV at three different house price levels
|
House price |
75% LTV – two-year term/all mortgage deals |
75% LTV – all terms/all mortgage deals |
95% LTV – two-year term/all mortgage deals |
95% LTV – all terms/all mortgage deals |
|
£163,529 (UK Finance – average price of a first-time buyer home July 2017) |
365 products (548) |
905 products (1,305) |
1 product (1) |
6 products (5) |
|
£218,390 (Halifax House Price Index – average UK property price June 2017) |
363 products (351) |
900 products (864) |
59 products (1) |
150 products (5) |
|
£250,000 (Upper threshold of first Stamp Duty Land Tax tier) |
560 products (540) |
1,353 products (1293) |
59 products (59) |
150 products (150) |
Source: AmTrust Mortgage & Credit, Money Saving Expert, CML, Bank of England, Halifax
Figures in brackets – product numbers Q2 LTV Tracker results.
Pad Bamford, Business Development Director at AmTrust Mortgage & Credit, commented:
“There has been some interesting movement in this iteration of the LTV tracker, not least the fact that more lenders have products available to those first-time buyers who are looking to purchase properties in excess of £200k, with only a 5% deposit.
“Last time we monitored this, there was just one two-year product available across all deals, however this has now jumped to 59 products, with another relatively big increase from five all term/all deal products to 150. This provides a modicum of good news and is perhaps a sign that annual targets are rearing into view, and lenders may be looking to first-time buyers in order to fill any void they might have. Certainly, it’s a different approach to the one taken throughout the rest of 2017 and one wonders whether this product choice will be maintained once the year draws to a close.
“In other areas however there is little change for first-time buyers, particularly those seeking to purchase at average levels across the UK. Product choice for those with just 5% deposit is still very low, almost non-existent, while these borrowers can expect to pay at least two-thirds more than those who are lucky enough to be able to put down a 25% deposit.
“Rate levels for both 95% and 75% LTV did drop slightly over the summer, but all indications and recent lender movement, suggest rates are on the increase again with the anticipation of BBR increases and in reaction to the recent upward trend for swap rates. That said, if you do have 25% deposit, now is still a very good time to be securing a mortgage, especially when rates are 2.6% higher for those with a 95% LTV loan.
“All in all, first-time borrowers with small deposits are nowhere near flavour of the month with lenders and therefore the trials and tribulations that come with attempting to get on the property ladder, still persist for many. We would like to see more lenders utilising private mortgage insurance in order to mitigate against any perceived risk and to bring their high LTV products’ pricing far closer to that of their lower LTV offerings.
“The premium that has to be paid for high LTV borrowers is significant and is likely to be putting large numbers of potential borrowers off when it comes to attempting a purchase. While we welcome an increase in product choice, there is a great deal of difference between offering products and writing business, plus this may be a short-term ‘blip’ as they attempt to hit end-of-year lending targets. We need to see the trend continue into 2018 and beyond if we are going to help more first-timers into their homes.”
