In many ways, the mortgage market is similar to the fashion industry.
Just as denim jackets seem to make a comeback every decade or so, high loan to value (LTV) mortgages seem to be widely available once again.
For those of you who may not remember the impact of the financial crash of 2007/8, such as young first time buyer mortgage hunters, then I’ll just say that it was a very challenging time and one that went from lenders offering very high LTV mortgages to lending almost nothing at all.
However, high LTV mortgages are on the rise and it hasn’t gone unnoticed by the Prudential Regulation Authority, which has raised concerns about lenders’ willingness to increase their risk in order to maintain profit margins.
For example, Moneyfacts recently reported that the average two-year fixed-rate at 95% LTV has fallen from 5.33% to 3.25% over the past five years. Similarly, at 60% LTV, average two-year rates have fallen from 2.96% to 1.90%, making both 90% and 60% LTV mortgages more accessible.
As the debate opens up around ‘risky’ high LTV mortgages, here’s Complete Mortgages’ view.
1. Apples and pears
Lenders often talk of income multiples in order to ascertain a mortgage applicant’s affordability threshold – and the current debate around the acceptability of lending six times income is gathering momentum. However, given how low the Bank of England base rate currently is, then a multiple of six times income based on today’s available mortgage rates requires lower monthly mortgage payments than five times income based on the interest rates prior to last decade’s financial crash.
2. Helping the next generation of homeowners
Getting on the property ladder has become increasingly difficult. Property values have outstripped salaries, the result of which has priced out young people from getting a first time buyer mortgage. High LTV mortgages, which typically only require a 5 – 10% deposit, help first time buyers become homeowners, which is important.
3. Current earnings don’t necessarily reflect future earnings
First time buyers, who are relying on buying a property with only a 5 – 10% deposit, may have to go down the high LTV mortgage route as their earnings may be small in relation to the sum they’re looking to borrow. However, it doesn’t take young professionals long to move up the career ladder and increase their salaries, thus reducing their level of mortgage risk by default.
4. Post-crash regulation
Despite what is being reported in the news, structures imposed by regulatory bodies, such as the Mortgage Market Review, make it very difficult for mortgages to be handed out to those who are unable to afford the repayments.
High LTV mortgages may have increased, but so too have the number of variables and considerations that mortgage applicants are now assessed on. It is, of course, important to note that the Bank of England base rate is very low and could change at any time, however any changes to interest rates are quickly integrated within lenders’ affordability tests.
If you’re about to apply for a mortgage, looking for a professional mortgage adviser in Guildford or think you need to apply for a high LTV mortgage but are concerned by the potential risks, then contact the team at Complete Mortgages, who can assess your affordability levels prior to your mortgage application going to the lender.
We help our clients secure high LTV mortgages, buy to let mortgages, limited company buy to let mortgages, equity release mortgages and adverse credit mortgages. Contact 01483 238280 or email info@complete-mortgages.co.uk for more information.
By Mark Finnegan, Director at Complete Mortgages
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