Since the start of the year, banks and mortgage lenders have withdrawn 60% of mortgages for borrowers with small deposits. The lack of availability these mortgages bring means first time buyers will have a harder time than previously with getting a foot on the property ladder.
The pulling of these mortgages is in the wake of Kwasi Kwarteng’s mini budget announcement last month, which saw the axing of stamp duty and the tanking of the pound.
Mini Budget Aftermath
As a result of this, the majority of lenders have pulled home loans or have yet to return with their 95% loan-to-value products revealed consumer site Moneyfacts.
Increasing uncertainty in the market has led to a decrease in the number of deals available to would be buyers. Fixed rate mortgages were pushed up by the sell-off of government bonds. Home loans that require small loans have suffered the biggest hit as lenders are trying to distance themselves from the riskiest part of the housing market.
It is likely that lenders will stop offering their riskier products, as they will be trying to avoid the uncertainty in the market.
Moneyfacts also revealed that the number of mortgages at a 95% loan-to-value was at 347 at the start of the year and had dropped to 283 by September 23rd , the day of the mini budget announcement.
This number continued to hurtle downwards in the following weeks, landing on 135 on at the end of last week.
However, it isn’t just 95% loan-to-value mortgages that have taken a hit as the number of mortgages requiring a 10% deposit fell by almost half and mortgages requiring a 15% deposit declined by almost 40%.
Low Income Borrowing
Low-income borrowers have also felt the added pressure thanks to the rising rates. In data released by Moneyfacts, it was revealed that the average rate for a 95% loan-to-value mortgage is 6.64% up, up from the 3.06% at the beginning of the year.
The CEO of iPlace Global, Simon Bath, has suggested that any would be buyers who are currently renting should “calculate how much they are due to spend on rent in the interim, and judge how long they can realistically afford to save in anticipation of prices declining”.
What Does This Mean?
We spoke to Jonathan Christie, Co-CEO of The Property Buying Company about what this means for the housing market.
He told us “Everybody is struggling to keep up with the unstable nature of the market at the moment, whether they are a landlord, investor, homeowner or first-time buyer.”
He went on to say “However, it is obvious that first time buyers are the ones who are suffering the most by the recent changes to the market, especially as mortgage rates continue to soar at the same time as first-time buyer mortgages are being pulled by lenders”.
He continued “However we need to consider that the Stamp Duty Land Tax exemption will help with some stability as there will be some saving to offset higher interest rates. The first-time buyer market is what fuels the stability of all markets, so it is important that the Loan-To-Value’s lender issue are not too low to price out first time buyers from the market who have the smallest deposits.”
He concluded that “It may be the bank of mum and dad may have to intervene to help with a larger deposit to access the better rates which will be affordable and meet affordability calculations.”