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Higher-LTV lending not yet at pre-pandemic levels: Moneyfacts

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First-time buyers still lack the choice in mortgage products that was available before the first of the nationwide lockdowns, a new report from Moneyfacts shows.

The firms latest white paper, ‘2020-2021: The year the mortgage market moved’ describes eight key points that highlight how both lenders and borrowers reacted to the tumult of the last 18 months.

Within these eight points, Moneyfacts explains that at the end of May 2021, there were 38% fewer mortgages at 90% LTV and 53% fewer at 95% LTV compared to February 2020.

In February 2020, FTBs could choose from nearly 800 mortgages at 90% LTV and almost 400 at 95% LTV compared to just under 500 and 200 at the end of May 2021, respectively.

However, choices in the 95% LTV category have increased in recent weeks, Moneyfacts does add, with 60 being brought to market since the introduction of the Mortgage Guarantee Scheme (MGS).

This dovetails with another of the key points, which shows that there was a sixfold increase in demand from FTBs between February 2020 and July 2020, most likely due to the stamp duty cut announcement in the summer of that year.

Despite this demand cooling slightly in the year since, the number of FTB searches from March 2021 to May 2021 “is still nearly three times greater than the same period of the prior year,” says Moneyfacts.

It adds: “The share of mortgage searches for FTBs has not fallen below 22% since May 2020 right up to the end of May 2021.”

The complete list of key points reads as follows:

  • Remortgage demand nearly doubled at the start of the first national lockdown.
  • Six times more demand for FTB mortgages at its peak.
  • High-LTV lending is still to return to pre lockdown levels.
  • Borrowers not spooked after the first lockdown – demand increased despite poorer rates and less product availability at higher LTVs.
  • Those ready to remortgage at 80% LTV can find lower average rates than their initial deal.
  • Average revert rates have fallen slowly from 4.90% before the pandemic to 4.44%.
  • Fees are increasing after a trend of these decreasing year on year for the past three years.
  • Lenders remain cautious and continue to price for risk of default.

Moneyfacts head of digital Michelle Monck says: “Borrowers have been fast to react to the changing situation during the series of national lockdowns. During the first, there was an increase in remortgage activity, suggesting some may have had concerns about their ability to do this later on.

“This increase though was dwarfed later on as demand swelled by more than sixfold for first-time buyer mortgages and nearly sixfold for moving home mortgages compared to levels seen in early 2020.

“The availability of 95% LTV mortgages has picked up during 2021 as some lenders joined the MGS, and others becoming more confident in the new environment launched their own higher LTV products.

“However, in terms of rates and availability even the government backing provided under MGS does not counteract in full the current potential volatility and uncertainty to come in the economy during the remainder of 2021 and beyond.

“While the effects of unwinding the furlough scheme and the results of the removal of coronavirus restrictions in the UK are not known, lenders will continue to act with caution. For example, the differential between the average rate at 60% LTV versus 90% LTV has increased from 0.77% in March 2020 to 1.64% in July 2021.

“The increase at 95% was 1.46% to 2.21% for the same months. This shows lenders pricing in for potential default risk and this strategy of cautiousness is also manifesting itself right now as lenders offer the lowest risk borrowers at 60% LTV record breaking fixed rates of less than 1%.”

Original Article

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