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Shortage of high LTV mortgages creates tricky advice environment

First published in Mortgage Solutions

The provision of high LTV products is always going to be a major topic of discussion for our sector, simply because of their importance to so many borrowers, and therefore their importance to advisers.

In recent weeks we’ve seen further contraction in the high LTV space by a number of lenders and we’ve reached a point where we might justifiably ask whether 85% is the new 90/95%?

Products are of course still available at 90/95% LTV level but nowhere near the number the market seems to want, and the question must be asked whether the market can learn to cope without 90% and above or if it needs to lobby for and await a meaningful return.

Of course, in an environment where we have the significant incentive of a stamp duty holiday, the high LTV position is doubly frustrating. Most first-timers have become used to calling upon high LTV mortgages to get on the housing ladder and there will be plenty of existing borrowers who may find themselves having to move onto their SVR if the product availability at the higher levels just isn’t there.

It would be easy to place the blame for this purely at the door of lenders, but I think most reasonable practitioners will understand the pressures and risks lenders are currently facing.

Not just in terms of assessing increased or changing credit risk in an uncertain economic environment with unemployment on the rise and the UK in recession, but also in terms of their operational constraints. They have had to adapt to remote working, and many have had to cope with offshore offices being closed. It has been a challenging time to process growing levels of business to say the least.

That said, it’s also important to appreciate the difficult position this places advisers in, because a dearth of high LTV products undoubtedly affects their prosperity if they are unable to source mortgages and it also increases the complexity of the adviser’s job.

How do you best satisfy clients who have a 5/10% deposit when lending at this level is seriously scarce? Is there a possibility to get to 15% taking into account the stamp duty holiday? Can family support be utilised and, if so, what are the best mortgage options taking that into account?

We are fortunate in the market in that there are a number of schemes and lending options for clients impacted by the product shortage, but it can take time to line up a solution, especially in a market which is so changeable.

The more positive news is that, certainly our AR firms, are coping well with the absence of high LTV options and are able to either work with clients to get them to a satisfactory mortgage solution, or manage expectations of what is (and isn’t) achievable.

But there’s no doubting that the situation will have an impact on all stakeholders. Clients may well have to stomach a move onto an SVR rather than remortgaging to a new high LTV rate; advisers may have to tolerate an income reduction at the same time as an increase in individual case workload; and some lenders may find that their share of business from advisers and networks will be impacted. For example, one mainstream lender has seen their market share of business from Stonebridge halve as a result of its current product range – which includes a distinct lack of higher LTV products. This is clearly a reflection of that lender’s current strategy – and networks, advisers and customers will be missing the lack of availability from that lender.

Ultimately, it may well be that latter point which results in change – lenders’ appetites for annual lending figures largely remain and may well result in a move back towards high LTV for some, thereby delivering the extensive consumer choice which the UK mortgage market is famous for.

Rob Clifford is Chief Executive of Stonebridge

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