Mortgages with a 90% loan-to-value (LTV) are likely to remain scarce whilst employment figures and the economy remain fragile, expert lenders have warned.
With a second lockdown announced for England, an unemployment spike is expected, making lenders wary of committing to anything high-risk.
At a recent video conference organised by St James Place, various experts and commentators warned there were numerous reasons why lenders have stepped back from high LTV lending, and are unlikely to be returning to it anytime soon.
Issues lenders are concerned about include capacity issues, economic uncertainty and concerns over current house prices.
Damian Thompson, Managing Director of Retail Finance at Aldermore Group, said that lenders’ ability to take on new business had reduced thanks to the number of existing customers requesting to take out mortgage holidays and defer other loan repayments during the pandemic.
“Lenders have a fixed capacity and you can plan for a downturn, but no one planned for a Covid downturn. What we’re seeing from existing customers is some real challenges in their day-to-day lives and that’s sucking up quite a lot of resources and time,” he said.
“We have found that all this complexity drives significant conversations with customers, which is holding back lenders from offering 90% LTV. Now, I would love to be lending 90% tomorrow, but it will only come back when lenders get a sense that we are really through the spike of unemployment and we are clear about how customers are being affected.”
It’s not necessarily the end for 90% lending though. Louisa Sedgwick, Vida Homeloans Managing Director of Mortgages and Intermediary Mortgage Lenders Association Chair, believes that 90% lending will return with a more focused approach; targeting key groups of borrowers who are in safe jobs with a stable income stream.
“What I think will happen is that the 90% LTV deals will be customer specific rather than generic. At the minute 90% LTV products are generic to most customers, but I think we are going to start to see risk-based pricing. They may also lend on the basis that the customer is likely to remain in their employment for a long period of time, because why would you not want to lend 90% LTV to a GP, for example?” she said.
High LTV mortgages come with their own set of risks though and Sedgwick explained that currently, capital markets are simply not comfortable with those risks meaning specialist lenders who rely on wholesale funding are unlikely to be able to offer 90% lending in the short term.
It’s not just income and unemployment uncertainty that’s putting lenders off. Experts have warned that the housing market may face a fall in house prices of up to 25%. This hasn’t yet happened but that doesn’t mean that lenders aren’t considering it when making decisions about the risk of the loans they offer.
With the furlough scheme extended by the government until March 2021, it’s unlikely that lenders will have their concerns over income uncertainties and high LTV lending squashed anytime soon.