AmTrust Mortgage Loan to Value (LTV) Tracker

15 April 2019

LTV Tracker reveals increase in deposit requirements for first-time buyers resulting in increased mortgage costs

• Average rates continue to drop for both 75% and 95% LTV borrowers; average first-time buyer property price rises by close to £10k since last Tracker raising average deposit levels required and monthly/annual costs.
  
  
• Even with rate falls for both 75% and 95% LTV borrowers, those with only 5% deposits continue to pay close to 50% more in monthly/annual mortgage payments.
  
  
• Product numbers continue to drop for 75% LTV but increase for all 95% LTV options. However, still over five times as many products available for 75% LTV borrowers compared to those with 5% deposits.

Mortgage insurer AmTrust’s latest Mortgage Loan to Value (LTV) Tracker has today revealed a significant increase in the cost of the average first-time buyer house, by close to £10k, has resulted in raised monthly and annual costs for first-timers taking out average mortgages.

According to the latest UK Finance figures, the average first-time buyer house has changed from under £169k to over £177k, resulting in increased monthly and annual costs for borrowers who can put down either a 5% or 25% deposit.

The monthly mortgage cost disparity for average first-time buyers seeking averagely-priced homes continues to be high, with 95% LTV borrowers continuing to pay close to 50% more for their mortgages than those at the 75% LTV level.

And this with average mortgage rates continuing to fall - for a 95% LTV mortgage, rates dropped from 3.23% in Quarter four last year to 3.03%, while there was also a drop in average rates for 75% LTV borrowers, with a quarterly fall from 1.75% to 1.68%.

The rate differential between 75% and 95% LTV loans has therefore continued to narrow, down to 1.35% from 1.49% in Quarter three last year.

Those with smaller deposits pay (on average) £801 per month/£9,612 each year, while those with 25% deposits pay (on average) £543 per month/£6,516 per year.

It comes after a period when costs repeatedly fell for both 75% and 95% LTV first-time buyers.
 
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 £177,253 (UK Finance – December 2018)

AmTrust says that increased competition in the mortgage market continues to drive average rates lower, especially with lenders seeking to secure greater levels of first-timer buyer business. Its product number data also shows that while the number of 75% LTV products has fallen quite significantly this quarter, there has been an increase in 95% LTV products.

Product numbers continue to rise for 95% LTV borrowers

Greater appetite to lend to first-time buyers with small deposits continues to translate into greater product choice for 95% LTV borrowers, with the latest iteration of the Tracker showing an increase in mortgage options across both two-year and all-term options.

The AmTrust LTV survey reviews 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 from UK Finance figures, the price of an average house as outlined by the March 2019 Halifax House Price Index, and 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 includes deals available to both mortgage advisers and direct-only.

For the second Tracker in a row, AmTrust has revealed an increase in product numbers across the entire 95% LTV product sector, but a fall for all 75% LTV options.

Two-year product options for 95% LTV comfortably move beyond three figures across all three scenarios, while those looking at all mortgage terms and options, have more than 260 products to choose from.

While all 75% LTV product options have however fallen by close to 10%, borrowers lucky enough to have a 25% deposit still have over 600 two-year product options to choose from and over 1,450 options when deciding between all-terms/all mortgages.

This means 75% LTV borrowers can still access over five times as many mortgage products as their 95% LTV counterparts.

AmTrust however does believe that the significant dip in 75% LTV options could be a result of a number of lenders closing for new business since the start of the year, while the increase in 95% LTV products might be down to lenders feeling the need to go further up a perceived risk curve in order to secure business in what is a still highly-competitive marketplace.

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, UK Finance, Bank of England, Halifax
Figures in brackets – product numbers Q4 2018 LTV Tracker results.

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

“This iteration of our LTV Tracker comes complete with a number of in-built contradictions.

“On the one hand average rates for both 75% and 95% LTV borrowers have fallen, which ordinarily might result in a continuing fall in monthly and annual mortgage payments for first-timer buyers. However, this is not the case because the average first-time buyer house, according to UK Finance, has risen in cost by close to £10k since the last Tracker, resulting in the requirement for an increased deposit and an increased loan amount which has increased mortgage costs.

“So even with rates continuing to hover close to record lows, increased house prices mean that the average mortgage amount both a 75% and a 95% LTV borrower must pay has risen.

“On the product front, we also have some significant movement from lenders, particularly when it comes to the product availability for 75% LTV borrowers which has fallen for the second Tracker in a row. At the same time, we’ve seen the number of 95% LTV products continuing to rise perhaps showing that lenders are continuing to look for mortgage business which might previously have been considered as riskier due to the small amount of deposit being put down.

“The fall in 75% LTV product options might also be partly down to the recent announcements by a number of lenders that they are now closed for new business, although with only a handful of lenders doing this, you would not think this would amount for the nearly 10% reduction we have seen.

“It’s far more likely that we are seeing lenders continuing their search for greater margin levels which means they are now far more willing to look beyond ‘normal’ parameters and to improve their offering for high LTV borrowers. The product number differential is still a chasm but it is always positive to see those with 5% deposits having a greater number of products to choose from.

“In the near future there are a number of important decisions to be made by the Government and the regulators around the provision of high LTV loans and we believe that a growth in private mortgage insurance can help sustain and grow the number of products available to those who are unable to rely upon the Bank of Mum & Dad to help them onto the property ladder.”