First-time buyers with small deposits still paying a high price for mortgage access

12 April 2018

Average rates continue to fall but the rate differential between 75% and 95% LTV products grows.
Those with only 5% deposits still pay almost two-thirds more for their mortgage each month/year.
LTV Tracker now reviewing product choice for those purchasing at £300k – the point at which first-timers begin to pay stamp duty land tax.

2018 has started relatively well for first-time buyers, with average mortgage interest rates continuing to fall, however the mortgage market still overwhelming favours those with at least a 25% deposit.

The latest findings from the quarterly AmTrust Mortgage Loan to Value (LTV) Tracker show that those first-timers with only a 5% deposit are still having to pay almost two-thirds more per month in mortgage payments than those with a 25% deposit. This has been a constant over the three years that the Tracker has run.

Chancellor Philip Hammond, in last month’s Spring Statement, said that 60,000 first-time buyers had already benefited from the Government’s decision to cut stamp duty for those purchasing up to £300k. However, AmTrust’s Tracker shows that product choice for those first-timers with just a 5% deposit is dramatically down on those who have been able to save a larger amount, or who have the benefit of family support.

AmTrust suggest the major fluctuations in product choice each quarter are damaging the first-time buyer market as those wishing to purchase cannot guarantee they will be able to secure a mortgage, and with affordability concerns, are less likely to look at purchasing.

The AmTrust Mortgage LTV Tracker reviews the average monthly mortgage payments for first-time buyers on average loan levels, comparing loans for those with a 5% deposit to those with 25%, and looks at the product availability for first-timers.

Average fixed-rates for 95% LTV mortgages, according to Bank of England data, continued to fall at the tail end of the year, staying below 4%. Average rates for 75% LTV mortgages also fell again to 1.53%, showing that lenders are still competing hard for borrowers perceived as ‘less risky’, given they have larger deposits.

AmTrust’s research reveals that the average loan required by first-time buyers has gone up again since the last quarterly tracker in January – up to £123,671 for those with a 25% deposit, and £156,650 for those with a 5% deposit.

With average rates of 1.53% for 75% LTV loans, and 3.83% for 95% loans this means high LTV first-time buyers will still pay 63.7% more than those with bigger deposits - £5,952 per year compared to £9,744. AmTrust point out that the monthly and annual mortgage amount difference has dipped slightly since the last Tracker.

Table 1: Average monthly repayments: 75% LTV mortgages and 95% LTV mortgages*

Source: AmTrust Mortgage & Credit, Money Saving Expert, UK Finance, Bank of England
Figures in brackets – Q4 2018 LTV Tracker results.
*Based on an average first-time buyer house price of £164,894 (UK Finance – January 2018)

AmTrust believes that an anticipated increase in Bank Base Rate (BBR) by the Bank of England’s Monetary Policy Committee (MPC) next month, may not immediately feed into lender’s rates as there is relatively strong competition for first-time buyer business, especially at lower LTV levels.

The Government’s focus on supporting the first-time buyer market has continued and demand appears to be growing, meaning that a greater number of lenders are looking at the sector. However, latest house price index data suggests that average UK house prices are on the move upwards again meaning first-time buyers will need both bigger deposits and larger loans in order to purchase.

Product numbers continue to fluctuate

This iteration of the AmTrust LTV survey continues to review the number of actual product options available to first-time buyers with either a 5% or 25% deposit based on the price of an average first-time buyer house, the price of an average house as outlined by the January 2018 Halifax House Price Index, and – in this tracker - the price of a house at the starting tier of stamp duty land tax, £300k. Below this amount first-time buyers do not need to pay any stamp duty. In order to do this, AmTrust uses one of the online mortgage search engines which include deals available to both mortgage advisers and direct-only.

The latest research revealed there has been ongoing fluctuations in product choice with a big difference for those who are able to put together a 25% deposit, compared to those with just 5%.

Those lucky enough to be able to review 75% LTV options, open up a market of potentially thousands of products – depending on the type and term – while, at the other end of the scale, those potential borrowers seeking 95% LTV loans are more likely to find their choice numbered in the tens, rather than the hundreds or thousands.

AmTrust believe lenders continue to aim the bulk of their first-time buyer product range at those with larger deposits, and that this trend is unlikely to change unless there is a major reappraisal of product needs, and a real appetite to write more high LTV business.

Table 2: Number of products currently available at 75% and 95% LTV at three different house price levels

Source: AmTrust Mortgage & Credit, Money Saving Expert, CML, Bank of England, Halifax
Figures in brackets – product numbers Q4 2017 LTV Tracker results.

Pad Bamford, Business Development Director at AmTrust Mortgage & Credit, commented:

“This iteration of the LTV Tracker could well be summed up as, ‘the more things change, the more they stay the same’ because in terms of rates, monthly/annual mortgage costs, and product choice for first-time buyers, there continues to be a real and tangible gap between those lucky enough to have a larger deposit and those that do not.

“It is perhaps not surprising that we have such a strict correlation between recent Trackers because lenders, in particular, appear to like the status quo and seem to have little incentive to move beyond what they are currently doing.

“Despite almost every survey of potential first-time buyers showing that the biggest barrier to purchase is saving for the deposit, there still appears to be a major reluctance to service the higher LTV marketplace, despite a growing need and demand. When you are having to pay almost two-thirds more than your 25% deposit counterparts and your product choice is very low, it is perhaps not surprising many people feel they have no option but to wait it out, and try to save more. This is clearly easier said than done given poor wage levels, the rising cost of rent, and the still small levels of housing supply.

“The stamp duty cut for first-timers buying up to £300k is, one presumes, designed to incentivise those potential purchasers to get on the ladder now, but in reality, until the deposit hurdle is overcome and we can offer borrowers more high LTV options, the measure is only really going to help those who were going to purchase anyway.

“We believe that lenders who utilise private mortgage insurance have the perfect tool to offer such products, mitigate their risk, and provide competitive options for first-timers. Many building societies are already doing this but the market could be boosted considerably by more mainstream banks choosing this option.”