Copy article

Advising on high LTV cases

Journalist: John Fitzsimons, Freelance

ended 10. January 2023

Morning brokers

This week the BoE put out a study around high LTV mortgages (https://www.mortgagesolutions.co.uk/news/2023/01/06/high-ltv-borrowers-more-likely-to-choose-two-year-fixed-mortgages-boe/), including the finding that these borrowers are more likely to go for 2-year fixes as price is such a big driver for them.

Keen to hear what your own experiences have been with high LTV borrowers of late. 

  • Are they trending more towards shorter terms?
  • What's the level of product choice like compared with six months ago?
  • Has the advice process for these borrowers changed at all since the upheaval of last year?

Any and all thoughts on this are very welcome

All the best

7 responses from the Newspage community

Copy all

Copy

Editor
Craig Fish
Director at Lodestone Mortgages
Most clients are shifting towards shorter-term fixed rates, not just those with high LTV mortgages, and this is because there is a general feeling that rates are expected to drop further in the coming months. Clients want flexibility and not to be tied into an overpriced product. However, most clients that are looking for high LTV mortgages tend to be first-time buyers, so budget control is important for these people. We are also conscious of the fact that there is a potential for negative equity over the coming year and so longer-term fixed rates might be a better option as we wouldn't want clients to be stuck with only their current ender as a choice when a remortgage is due in 2 years. Independent expert advice is crucial to these borrowers.
Copy

Editor
Mike Staton
Director at Staton Mortgages
There are a lot of mitigating factors that decide whether a 2 year fixed mortgage is right. Historically a high LTV mortgage is normally taken out by FTBs, its highly likely that if this is a joint mortgage the relationship is not yet 5 years old, i find it a massive risk tieing somebody into a deal that is longer than there relationship has been going, the risk of a potential £10k penalty outweighs the stability of a longer term rate, especially when High LTV 5 year fixed deals are the most expensive products out there after adverse credit mortgages. Many High LTV clients are now looking at the rates and not wanting to fix in long term on such high rates now, they would sooner risk further increases with the hope that they will reduce, some of these clients have been proven right with 5 year fixed rates dropping below 5% now
Copy

Premium
Kylie-Ann Gatecliffe
Director at KAG Financial
We are definitely seeing more clients on higher loan to value mortgages opting for two year fixes over five. The main reason for this is that these clients are having to look at the most expensive product tiers, so many of them opt for shorter term fixed rates - in the hope house prices will increase, therefore generating more equity in their homes. This combined with the longing of rates to decrease, makes them more attractive than tying in for a longer period. The product range at the high end of loan to value (90-95%) has decreased versus six months ago, but not to the point where it has become a concern. There are still plenty of options for these clients.
Copy

Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
This is interesting, as it is the opposite of my own experience, with many higher LTV borrowers having 5-year fixed rate deals. This is, however, less through their own choice and more the fact that lenders are only offering the very highest LTV deals (95%) on 5-year products in the main. One rung down the ladder, at 90% LTV, we do see lenders more willing to lend on a 2-year basis, but I still do not see a huge uptick in the proportion of borrowers taking that option - whether this is due to them preferring the longer term stability of a 5-year deal, or simply because at the moment a 5-year deal can be arranged for a lower rate than a 2-year deal, I could not say. Of the few 2-year deals I have done with smaller deposits, the driver is usually an outside factor, such as them planning to upsize in two years.
Copy

Michael Webb
Managing Director at Mortgage Republic
Historically, high LTV borrowers were sensible to take shorter-term fixed rates as when they came to remortgage in 2 years the LTV had dropped significantly due to rapidly increasing property values allowing them to remortgage quicker on to a lower rate. Moving forward this conversation becomes more complex, and other considerations need to be addressed such as the possibility of negative equity in the short term which may make remortgaging more challenging or even impossible. There is still an abundance of lending solutions at the higher loan to value in the marketplace, but borrowers need to take care and dedicated advice on their situation to ensure positive outcomes in an unpredictable property market moving forward.
Copy

Jonathan Burridge
Founding Adviser at We Are Money
First time buyers often want to keep their options open as they may be compromising on their purchase to become homeowners. The range of 5% deposit mortgages is not as wide as those with say 10% deposit or more, so, taking a short-term rate knowing that the balance outstanding will reduce and possible values will rise means that in two or three years time the borrower may face a better rate than had they opted for a five year product at the start. That said, there will be first time buyers and home movers for whom a five year is appropriate.
Copy

Gary Boakes
Director at Verve Financial
The old age discussion of whether you take a 2 or 5 year fixed has certainly shifted to whether you take a 2 year fixed or tracker over the last 4 months across all the LTVs. This is no different at the higher LTVs, with forecasts looking more promising in 2024, more clients are hoping to take advantage of this and hopefully benefit from a reduced rate.