The Bigger Issue


A toss up between More lenders are offering high LTV loans but is this just lip service to competition o


There is no doubt that over the last 12 months we have slowly but surely seen a small thaw in product availability for first-time buyers and home movers. Further evidence from the Council of Mortgage Lenders in the last two months has confirmed what estate agency distribution has known for a long time: affordability is no longer the key issue for house purchasers. It’s gathering the deposit which proves the real challenge. The average deposit presented by buyers went from an average


of £12,000, peaking at over £32,000 and now still remains at around £25,000. That is why it’s absolutely vital that in a stagnant house purchase market, higher loan to value products are available to get people moving again. 90% LTV products are now widely offered accompanied by


sensible criteria and rates. 85% LTV products at under a 4.5% interest rate have dominated our sourced and lent products throughout 2011. It hasn’t altogether been plain sailing for lenders. For example,


there was a wave of idiotic national press hype when Northern Rock re-entered the 90% LTV market. The biggest issue facing banks is one of liquidity. Capital does


seem to be there now and some competition seems to be returning as a result of a drive for market share by some lenders as new senior managements assert their strategies some with an eye on future potential flotation. However, remember that whilst competition is definitely


increasing, there is still an absence of 95% LTV products linked with sensible criteria, offered at a decent rate. No volume lender is currently in that market, though hats off to


the smaller building societies that have entered. It is essential we see the likes of RBS, Nationwide, Santander and Lloyds Banking Group entering with the scale they bring. I think most disappointingly, lenders continue to penalise the new build sector with no large lender lending 90% on new apartments. So whilst it is encouraging that we have widespread 90% LTV products at more competitive rates and lender competition is increasing, we still have some way to go until we are back to a 5% deposit for first-time buyers.


Nigel Stockton, financial services director,


Countrywide


In the last two years the number of mortgage products available at 85% LTV or higher is roughly three times the number in 2009. Is this just lip service? In a word, no. As product manufacturers, lenders are not generally in the


habit of creating products they don’t think will sell. The cost of bringing a product to market is too high to do it just for the sake of a headline. Are these products increasing choice for consumers? A


qualified yes. What we have seen is that many of the higher LTV products


come with some sort of guarantee requirement. To some extent this is to be expected given the continued uncertainty over the housing market and the wider economy. Lenders are looking more closely than ever as to how they


balance risk against return. They are in the difficult position of balancing risk with the much higher cost that now attracts whilst making them attractive and affordable. Many have opted for some sort of parental guarantee but how


popular these are is debatable. We have already seen some high profile launches only for the products to be withdrawn. At Clydesdale we take a different approach – opting for more


straightforward products. We manage our risk through the credit assessment of the


borrower. Simply, we lend to people who we believe are a good risk. This allows us to make specific products up to 90% LTV available through our intermediary partners. The range of products in the market is now there to create


choice. It’s not what it was before the credit crunch and it’s possible that it never will be. Yet the market remains dominated by four or five large lenders despite this. Why? Distribution. Those lenders with higher LTV products are often smaller with regional networks. Borrowers may be unaware of them or physically cannot access the products. This is why brokers are crucial to delivering real competition and choice. The broker market provides a vehicle to overcome barriers to distribution and promotes awareness of products available to borrowers who need them.


John Tooth, head of B2B mortgage distribution and strategy, Clydesdale Bank


Our experts have had their say, now it’s your turn to have yours. Visit www.mortgageintroducer.com and vote for the expert you think makes most 26 mortgAge introducer AUGUST 2011


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