First-time buyers hit as access to high loan-to-value mortgages falls

Posted 21 September 2016

Lenders are guarding their funds against low-deposit mortgages and it's first-time buyers who are finding themselves the hardest hit...

Access to low-deposit mortgages is crucial for many first-time buyers. As rising rents mean that many are struggling to save up the cash they need to buy, access to 90% or 95% mortgages is critical if younger people want to be able to own their own home.

However, in an environment where the choice of high loan-to-value mortgage deals is falling and the Help to Buy mortgage guarantee scheme is set to end, it's a tough time for first-time buyers.

"Worrying indication of decline" in first-time buyer mortgages

New research has found that the number of low-deposit mortgage products has fallen for two consecutive months since the EU referendum.

In addition, the Daily Mail reports that 95% mortgage lending accounted for just 2.5% of lending in the first three months of 2016, down from 3% in the previous quarter and down from 3.5% in the same period last year.

Simon Crone, of mortgage risk specialist AmTrust International, says: "These findings are a further worrying indication of decline, particularly concerning for first-time buyers who are typically unable to save large deposit sums and rely on high-LTV lending. It also suggests that while lenders have appetite for lending in general, they are more focused on lending to those customers with larger deposits."

Experts believe that the Brexit vote has led to many lenders withdrawing their most risky products as they wait to see how the decision affects the wider economy. Crone adds: "it is concerning, but perhaps not surprising, to see the number of available products for those with small deposits going into decline at a time when lender appetite for risk looks set to decrease.

"Saving a large deposit remains the biggest obstacle to homeownership, made harder for hopeful buyers by high rental costs and stagnant incomes. High-LTV lending is therefore invaluable to many first-time buyers and their dreams of homeownership."

First-time buyers are also set to be hit by the end of the government's Help to Buy scheme, as we see next.

Help to Buy set to further reduce mortgage choice

Back in 2014, the Help to Buy mortgage guarantee scheme was introduced to encourage lenders to offer more low-deposit mortgages. Banks were encouraged to offer 95% deals to borrowers with the government effectively ensuring the 'risky' part of the deal. The scheme was an instant success, and 4.2% of all lending during April to June 2014 was at 95% loan-to-value.

With the Help to Buy scheme set to finish at the end of 2016, the outlook for first-time buyers is uncertain. Charlotte Nelson, of personal finance site Moneyfacts, says: "It is still unknown what effect the Help to Buy mortgage guarantee scheme ending this year will have, but the number of products at 95% LTV is likely to dwindle yet again, providing a further blow to borrowers with small deposits who were getting accustomed to the plethora of choice they had.”


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