“There has already been speculation about what the 95% LTV rates will be, especially when affected lenders have to factor in the fees they are paying the government for the guarantee.”
Next month will be an interesting period in terms of product prices and competitiveness, as April is expected to mark the first 95% LTV mortgages to be released by lenders who participate in the government guarantee program.
Much of the focus on 95% has been on the use of the products by first-time buyers and how this might allow them to enter the housing market earlier, but – unless Lenders are only offering these new products to first-time buyers, which I doubt – this will open a new front for existing homeowners and remortgagers who might want a higher LTV product.
The big unknown in this area, however, is pricing, and there has already been speculation about what the 95% LTV rates will be, especially when affected lenders have to factor in the fees they pay the government for. warranty.
In my opinion, this could go two ways. The first, and perhaps the most likely, is that 95% products come in at relatively high rates, and there will undoubtedly be some degree of introspection – from advisers in particular – to find out if it is “good advice” to recommend products that could be at significantly higher rates than what is available at 90%, for example.
A lot will depend on the individual circumstances here, and of course the ability of borrowers to meet the affordability and stress tests put in place by lenders, and it will also be interesting to see what level of appetite there is to lend to. levels of 95%. Each lender will have a clear vision of the volume and proportion of 95% LTV loans they want to attract, and this government intervention will not drastically change this capacity issue.
The second – and by no means beyond the possibilities – is that 95% LTV products are offered at very competitive prices and this generates even greater interest among newbies and those looking to remortgage. / to relocate.
This increased demand may well open the door for other lenders to become active in this space, perhaps not necessarily using government guarantee, but as building societies tend to do, using private mortgage insurance. , or even some lenders who choose to self-insure. Such competition could then lower costs, which ultimately has a knock-on effect at lower LTV levels; so, for example, we might see a 90/85/80% more competitive industry due to cascading price pressure.
Advisors will welcome this, as there is an underlying feeling that prices – especially above the LTV level of 80% – are lacking in competitiveness. For example, while at 60% LTV some of the best rates are in the lower range of 1%, at 75% they are close to 1.5%, while 80% are close to 2%, 85 % to 2.5% and 90% are often more than 3%. Of course, lenders will set higher prices the higher they go up the risk curve; the big question is whether these deviations are larger than they would be under more “normal” circumstances.
If we follow that path and get the launch of two-year 95% fixed rate LTV products that are most competitive at around 3.5%, consumers could easily accept it. Many say lower rates are highly unlikely, given that pricing will have to incorporate or reflect the cost of the collateral system, which is not insignificant. I’ve heard industry assumptions of 4% / 4.5% / 5% for the most expensive loans – we’ll have to wait and see, but it still looks like some lenders may make a big statement here, which could then result in a different reflection in the lower LTV bands as well.
If the scenario I have described around the price pressure from a relatively competitive 95% LTV market seems unrealistic, then you may be ignoring the old Help to Buy guarantee system that undoubtedly resulted in more competition at high LTV levels, especially from lenders who did not participate in the government program, but wanted to meet aggregate demand for the tranche of business it generated.
This government guarantee is roughly a carbon copy of Buyer’s Aid – can we assume the same pricing scenario will occur? It would certainly help to have a highly competitive product line to offer borrowers in this space – we look forward to lender decisions on pricing and criteria.