business are being denied mortgage funding which seems strange when you consider that many self-employed people can actually be a better proposition to lend to,” he says. “At a time of rising unemployment and increasing self- employment we need lenders to realise the potential for good business and start to help this sector of the market.”


interest-only The interest-only debate has raged on for more than a year now and despite the Financial Services Authority saying it doesn’t intend to ban the product outright many lenders have second-guessed forthcoming regulation and stopped offering interest-only deals above a 75% LTV.


In terms of stabilising lenders’ balance sheets that makes sense but for many borrowers it puts homeownership firmly out of reach. There is the added problem of borrowers already on interest-only deals now on their lenders’ standard variable rates who are simply ineligible to remortgage. Either their repayment vehicle was never disclosed pre-2007 or it is no longer considered viable or their LTV is above the criteria on offer in today’s market.


Karasavvas says that in the past inheritances, bonuses or the sale of the property would have been a valid way of repaying a mortgage.


“But the majority of these options are not acceptable to lenders anymore and would be refused, diluting the rates available to clients and the choices they have as the monthly payment on mortgages is simply not affordable,” he explains. “The need to swap from interest-only to repayment has deterred many from making the next step up the ladder.”


loan to value Deposits or lack thereof is still a big problem for people both on and off the ladder. There are several sides to this – saving for the deposit in the first place can be an impossible task, particularly for first-time buyers looking in London where they can easily need tens of thousands of pounds before thinking about applying for


a mortgage. Another problem is falling house prices taking a bite out of homeowners’ equity in the property, or worse, driving them into negative equity. Ray Boulger, senior technical director of John Charcol, says the biggest single problem jamming the housing and mortgage market on a transaction basis is the fact that at least 40% of current homeowners with a mortgage are mortgage prisoners.


“Either they are in nega- tive equity or don’t have enough equity and/or sav- ings to enable them to get a reasonably priced mort- gage on a new property... Add to that savvier buyers reading dreary headlines and people are putting in silly offers on properties just to see what happens. Either homeowners take properties off the market to wait for sunnier climes or they are forced to ac- cept less and find their own move up the ladder that much harder”


“Either they are in negative equity or


don’t have enough equity and/or savings to enable them to get a reasonably priced mortgage on a new property,” he says. Add to that savvier buyers reading


dreary headlines and people are putting in silly offers on properties just to see what happens. Either homeowners take properties off the market to wait for sunnier climes or they are forced to accept less and find their own move up the ladder that much harder.


This is probably the most talked about issue for the industry and as a result there are a few more options on offer to try to tackle it.


Lloyds Banking Group has made considerable noise trying to help borrowers stuck in this conundrum. For existing LBG borrowers trying to move up the ladder the lender will accept up to 120% LTV on its second steppers deal if affordability is provable and the size of the mortgage doesn’t change. For first-time buyers there are


government programmes including FirstBuy combining help from the government and builders to top up LTVs using equity loans. Lenders such as Aldermore have teamed up with builders to offer similar top deals while family guarantor mortgages are also reappearing. There are planned initiatives from Castle


Trust to offer top up equity loans from December where borrowers can top up their deposits by giving Castle Trust a stake in their property’s equity. These initiatives should not be sniffed at but market commentators acknowledge that for all their good intentions, these “solutions” barely scratch the surface. Brokers are clamouring for higher


LTVs to help borrowers – particularly in the South East – get onto a much more expensive property ladder. But despite more lenders getting on the 95% LTV bandwagon brokers aren’t convinced.


David Hollingworth, communications


director at London & Country, says that although we shouldn’t castigate any potential measures to improve matters higher LTV mortgages cannot be kickstarted over night “but the cumulative effect can all help with a general improvement in market conditions”. Elsewhere Sally Laker, managing


director of Mortgage Intelligence, says if more lenders were able to offer 90% it would take the pressure off those that have but are restricted in how much they lend.


“There are first-time buyers are out


there,” she says. “Especially in the new build sector and they are at the beginning of the food chain.” 


mortgage introducer NOVEMBER 2011 37


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