Early Movers are Shaping the 95% LTV Market

19 Apr 2021

Two weeks after the chancellor’s Budget launched the government’s mortgage guarantee scheme, the first 95 per cent loan to value (LTV) products made their way to market.
 
Albeit these were from lenders not using the scheme, which has gone live today, at all.

Accord, followed by the Bank of Ireland, were first to bring five-year 95 per cent LTV fixes to market, and more lenders have now entered this under-served space.

I’m also aware of a major mainstream lender who will also make their entrance at 95 per cent not using the scheme, although this is likely to be after April.

What is interesting about those lenders who launched before today is they were not part of the government’s guarantee scheme, although I have little doubt they would not have appeared were it not for the announcement.

The cost of using the guarantee at around 90 basis points may prove prohibitive for some, and they are likely to feel they have a competitive and pricing advantage by opting out.
 
Intervention was required

However, this is not to disparage the scheme because it was undoubtedly required.

Much like the Help to Buy guarantee scheme did more than five years ago, we’ve seen government support in this area giving lenders confidence, but also a market to aim at.

At time of writing those lenders using the government scheme have clearly yet to launch, and there’s a lot to be said for getting out in front of those who had to wait.

So well done to those lenders who won’t be part of the scheme and are not waiting for the grass to grow under their feet.

They are effectively shaping the new 95 per cent LTV market right now, and those using the scheme will need to react.

From that sense, it’s instructive many have launched five-year fixes – as you will know, lenders who take part in the government scheme have to offer such a product as part of their range – and the pricing seems competitive.

Will those lenders using the scheme be able to match this?
 
Shaping the space

Accord have launched at 3.99 per cent while Bank of Ireland are offering 4.05 per cent, and it is also enlightening to see that both have put £500,000 maximum loan sizes on their products, and specifically outlined how these mortgages are not available for new-build properties.

In a sense we already appear to be following the line well-travelled from the Help to Buy scheme.

Then it wasn’t so much those lenders using the government scheme that truly shaped the 95 per cent mortgage space, but those who didn’t, choosing to cover the risk themselves or opt for private mortgage insurance.

This is a route that will be familiar to building societies in particular, and one you suspect, many will be utilising in the months to come.

From a market point of view, these launches couldn’t really have come at a better time.

Higher LTV product supply just made a big leap – I expect it to jump much further forward throughout (and beyond) the spring.
 

Bob Hunt

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