AmTrust Mortgage Loan to Value (LTV) Tracker
28 October 2019
Average rates rise and product numbers drop for 95% LTV first-time buyer borrowers
- Costs of mortgages increase for both 75% and 95% LTV first-time borrowers as average house price levels increase significantly for second quarter in a row.
- However, larger increase in costs for those with smaller deposits as average rates for 95% LTV mortgages rises.
- Product numbers continue to rise for 75% LTV borrowers but continue to fall for all 95% LTV options.
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Mortgage insurer, AmTrust’s, latest Mortgage Loan to Value (LTV) Tracker has today revealed a ‘double-whammy’ for those first-time buyers with 5% deposits, with average product rates back on the way up, and a continued fall in the number of products available to these borrowers.
This comes at a time when, according to the latest UK Finance figures for August, first-time buyers are paying on average £225,110 for a property, meaning that average deposit levels for 75% LTV borrowers are well over £56k, and 95% LTV borrowers now require over £12k.
The good news for those with a 25% deposit is that average interest rates, accord to the Bank of England, have continued to fall, with two-year rates down to 1.56%, compared to an increase for 95% LTV borrowers up from 2.95% to 2.97%. The rate differential for this Tracker edged up to 1.41% from 1.3% in Quarter 2.
It means that those with smaller deposits pay (on average) £1,011 per month/£12,132 each year – the first time the monthly amount has gone past £1k during the life of the Tracker – while those with 25% deposits pay on average £680 per month/£8,160 per year. This is a further increase on the Quarter 1 and 2 results, especially for 95% LTV borrowers who have seen costs rise by over £200 in six months.
AmTrust said that the competitive nature of the market was ensuring first-time buyers with large deposits continued to get the pick of the lowest rates, however those with smaller deposits were now likely to have to pay more for their mortgages which, coupled, with the increase in average house prices, was resulting in a significant cost increase.
Table 1: Average monthly repayments: 75% LTV mortgages and 95% LTV mortgages*
|
|
75% LTV mortgage |
95% LTV mortgage |
Difference 75%-95% |
|
Deposit |
£56,278 (£53,656) |
£11,256 (£10,731) |
£45,022 (£42,925) |
|
Loan |
£168,832 (£160,967) |
£213,854 (£203,892) |
|
|
Interest rate September 2019 (average) |
1.56% (1.65%) |
2.97 (2.95%) |
1.41% (1.3%) |
|
Monthly fixed payment (two years) |
£680 (£655) |
£1,011 (£962) |
48.7% (46.8%) |
|
Annual payment |
£8,160 (£7,860) |
£12,132 (£11,544) |
48.7% (46.8%) |
Source: AmTrust Mortgage & Credit, Money Saving Expert, UK Finance, Bank of England
Figures in brackets – Q2 2019 LTV Tracker results.
*Based on an average first-time buyer house price of £225,110 (UK Finance – August 2019)
Product numbers continue to fall back for 95% LTV borrowers
This iteration of the Tracker continues the theme of the last two quarters, with product numbers falling again for 95% LTV borrowers.
The AmTrust LTV survey reviews 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 from UK Finance August 2019 figures, the price of an average house as outlined by the September 2019 Halifax House Price Index, and the price of a house at the starting tier of stamp duty land tax, £300k. Below this amount first-time buyers do not currently need to pay any stamp duty.
In order to do this, AmTrust uses one of the online mortgage search engines which includes deals available to both mortgage advisers and direct-only.
At the end of 2018 it appeared mortgage lenders were showing more appetite for higher LTV borrowers, or at least upping the product availability. The last two iterations of the Tracker show a fall in product options which AmTrust said could be a result of a number of lenders – such as Sainsbury’s Bank and Tesco Bank – leaving the market.
AmTrust suggested this was a factor in lenders moving back towards a risk-averse strategy, offering more products for those first-time buyers with larger deposits. The Tracker shows an increase in product numbers for all 75% LTV options, while there was a corresponding drop in all 95% LTV options.
For those 75% LTV first-time buyers who are considering all terms and all deals, product numbers rose by around 180, which means that numbers have risen by close to 400 over the course of the last two Trackers. This means there continues to be over six times as many products for 75% LTV first-time buyer borrowers as there are for their 95% LTV counterparts.
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 |
|
£225,100 (UK Finance – average price of a first-time buyer home August 2019) |
811 products (759) |
1,831 products (1,652) |
113 products (117) |
260 products (260) |
|
£232,574 (Halifax House Price Index – average UK property price September 2019) |
810 products (759) |
1,830 products (1,651) |
113 products (117) |
260 products (268) |
|
£300,000 (Stamp Duty Land Tax tier – FTBs pay SDLT over this amount) |
816 products (766) |
1,843 products (1,667) |
112 products (115) |
253 products (253) |
Source: AmTrust Mortgage & Credit, Money Saving Expert, UK Finance, Bank of England, Halifax
Figures in brackets – product numbers Q2 2019 LTV Tracker results.
Patrick Bamford, Business Development Director at AmTrust Mortgage & Credit, commented:
“At the end of last year, the signs seemed particularly positive for first-time buyers with smaller deposits – average rates were falling and the number of products available to them was on the up.
“Nine months on, that landscape has changed significantly, and not only are we seeing average rates on the increase, but product numbers are falling, and – coupled with a significant increase in the average price paid for a property as outlined by UK Finance – we’re seeing mortgage costs rising significantly. Indeed, those with 5% deposits are now paying over £200 more per month than they were just six months ago.
“While larger-deposit borrowers are also paying more due to the average house price increase, their monthly payment increase is far less than their 95% LTV counterparts. Plus, they get to choose from a much more competitive market, with more than six times the number of products, plus rates continue to fall for them.
“In many ways, it’s a double-whammy for low-deposit borrowers who appear to have been hit far more by the withdrawal of a number of lenders during the course of 2019 than others. It is still a competitive market but lenders appear not to want to offer high LTV products in the same number and, a falling number of options also means that average rates are on the rise.
“We are now at a point where, for the first time in the history of this Tracker, 95% LTV borrowers can expect to pay over £1k per month for their mortgage – that’s almost 50% more than 75% LTV borrowers.
“It’s our belief that were more lenders to use a credit-risk mitigant such as private mortgage insurance, they would be able to cover any risk concerns they have with larger-deposit borrowers, be able to offer greater numbers of products, and offer lower rates much more in tune with the rest of the first-time buyer market.
“With plenty of debate around the political future of the Help to Buy scheme, lenders active in the first-time buyer market now need to think about their continued engagement with this borrower demographic and how they might approach the needs of high LTV borrowers.”
