Mortgage blow to housing market

MORTGAGE lenders risk killing off the house price recovery by pulling high loan-to-value (LTV) deals and starving borrowers of the finance to buy a home.

The big lenders have withdrawn mortgages at 90 or 95 per cent LTV, making it harder for buyers with smaller deposits to get on the property ladder.

Some have even ended deals at 80 or 85 per cent, as the economy crashes into a recession in the wake of the coronavirus.

Nationwide has cut its maximum LTV to 85 per cent for house purchases, remortgages and first-time buyers, although existing mortgage members may still borrow up to 95 per cent.

It explained it wants to protect borrowers from negative equity if house prices fall.

Director of mortgages Henry Jordan said it must factor in the uncertain outlook for the mortgage market and house prices into lending assessments.

Accord Mortgages, Virgin Money, and Yorkshire and Clydesdale banks have also pulled 90 per cent LTV mortgages, citing too much demand due to Covid-19 related staff shortages.

Martijn van der Heijden, chief of strategy at online mortgage broker Habito, said they were overwhelmed because the bigger banks remain wary of 90 per cent lending: “Some lenders have also stopped accepting variable income such as bonuses or overtime payments, limiting how much people can borrow.”

He warned this conservatism could become “self-fulfilling, impacting the availability of low-deposit mortgages and even threatening house prices”.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said HSBC is now the only major lender offering 90 per cent deals: “It is being inundated with applications, running out of its daily allocation of funds early each morning.”

Harris called on other big high street banks to return to the 90 per cent LTV market.

Yesterday, HM Revenue & Customs figures showed property transactions rose 16 per cent in May to 48,450. North London estate agent Jeremy Leaf said buyers are picking up stalled transactions but demand for smaller flats is low: “First-time buyers are concerned over post-furlough employment prospects.”

Buyers are likely to remain cautious given today’s uncertainty, while many who lose their jobs could become forced sellers.

Lenders have granted 1.9 million mortgage holidays since March, according to UK Finance, averting a wave of defaults and protecting the market.

Charlotte Nixon, mortgage expert at wealth manager Quilter, said the figure shows how hard the pandemic has hit household finances: “We will never know how many would have defaulted without the holiday, but even a small proportion could have had a huge impact.”

The scheme has been extended for three months but borrowers still have to repay all interest.

Hargreaves Lansdown equity analyst Emilie Stevens said the real test will come as the nation is weaned off furlough, when many could lose their jobs.