Banks have withdrawn 60 per cent of mortgages for borrowers with small deposits since the start of the year, making it harder for first-time buyers to get a foot on the property ladder.
A number of lenders have either pulled home loans or have yet to return with their 95 per cent loan-to-value products following former chancellor Kwasi Kwarteng’s “mini” Budget on September 23, according to data from consumer site Moneyfacts.
The sell-off in UK government bonds in the wake of the chancellor’s statement pushed up the cost of fixed-rate mortgages, with most banks withdrawing products for new customers across a range of deposit sizes. Home loans requiring small deposits have been hit the hardest, as lenders have sought to retreat from the riskiest part of the market.
“The reason why the number of deals in this space has fallen in recent weeks is because when there’s increasing uncertainty in the market, lenders will stop offering their highest risk products,” said Ray Boulger, analyst at mortgage broker John Charcol.
He added that banks will also be concerned about the ability of new borrowers to afford large mortgages when interest rates are rising. “Lenders will be even more stringent on affordability, or will require borrowers to have a higher credit score,” he said.
Simon Gammon, founder and managing partner at mortgage advisers Knight Frank Finance, said the prospect of house prices dropping made 95 per cent loan-to-value products unattractive for lenders.
“Seeing where the property market is going, it doesn’t take much for a high loan-to-value mortgage to get into the red,” he said.
The number of mortgages at a 95 per cent loan-to-value dropped from 347 at the start of the year to 283 by September 23, the day of the “mini” Budget, according to Moneyfacts. The number plummeted even faster in the weeks after the fiscal statement, declining to 135 on Friday — a 60 per cent fall since the start of the year.
The number of mortgage deals requiring a 10 per cent deposit fell by nearly a half, while those on a 15 per cent deposit declined by nearly 40 per cent. Mortgages requiring 40 per cent deposits have also been reined in, with the number of available products falling 45 per cent since the start of the year.
The chief executive of one of the “big four” banks (Lloyds Banking Group, NatWest, HSBC, and Barclays) said: “If you’re forecasting stress on house prices, we’ll see some pullback from the high loan-to-value mortgages.”
David Hollingworth, director at mortgage broker L&C, said that many lenders were yet to return to the high loan-to-value market in the wake of the “mini” Budget. Accord Mortgages, a subsidiary of Yorkshire Building Society, only returned to offering 95 per cent loan-to-value mortgages on Wednesday.
“Its slightly higher risk lending, and lenders are looking where bigger demand is likely to be [which is] in remortgaging,” he said.
Eleanor Williams, a finance expert at Moneyfacts, said: “First-time buyers are likely to feel the impact of the current circumstances keenly as the cost of living crisis shows no sign of abating.”
She added: “Not only may they be more likely to be looking for a low-deposit mortgage product, but they may also have concerns about meeting mortgage affordability requirements.”
Rising rates have added to the pressure on lower-income borrowers. The average rate for a 95 per cent loan-to-value mortgages is 6.64 per cent, up from 3.06 per cent at the start of the year, according to Moneyfacts.
Aaron Strutt, a mortgage broker at Trinity Financial, said: “There are fewer 95 per cent loan-to-value mortgages and they’re more expensive. At a time when first-time buyers’ incomes may be suffering more than others, we have a perfect storm of rates causing higher pricing.”
