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Virgin temporarily withdraws 95% LTV fixed rates for new customers

ended 23. November 2022

Jonathan Burridge of mortgage broker, We Are Money, has alerted Newspage to the fact that last night Virgin “temporarily” pulled 95% LTV fixed rate mortgages for new customers as “we review our homebuyer proposition and monitor market conditions” (see screengrab). Jonathan says: “This last comment about market conditions worries me. Are we going to start to see low deposit mortgages disappear like we did at the start of Covid?”. We asked brokers for their views.

 

9 responses from the Newspage community

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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Considering many economists think there could be a fall in house prices of up to 30%, I am only surprised 90% LTV mortgages are still available. 5% is a wafer thin layer of equity in a falling market from a risk management perspective so I would expect to see the end of these for the next 12 months.
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Craig Fish
Director at Lodestone Mortgages
If more lenders start to pull rates at 95%, then this is going to have a dramatic effect on first-time buyers with only a small deposit. However, for now at least, I'm not convinced that this is going to be a market-wide problem. For example, you've still got the likes of Nationwide who are in fact reducing rates at this level of deposit. I think there'll be greater visibility going into the New Year and believe that this move is more about managing workloads than a lender running for the hills.
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Justin Moy
Managing Director at EHF Mortgages
Whilst this is not helpful for first-time buyers, this wasn’t a total surprise given the much discussed property price challenges that lie ahead during the next 12-18 months. For first-time buyers, a 5% deposit is a considerable amount of savings, and coupled with the Help to Buy Scheme's demise, will only delay the opportunity to own your home, and with rent likely to increase substantially this becomes a double-edged sword. The current Mortgage Guarantee scheme from the Government, designed to underwrite and encourage 95% mortgage lending, finishes at the end of this December. Perhaps lenders need some intervention again to support FTBs and have the confidence to keep these products available? Lenders will likely be chasing the lower LTV remortgage business for the next few months, as they try to win lower risk borrowers on cheaper rates, and lower their overall exposure to high LTVs, especially if there is some form of house price correction on the horizon.
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Riz Malik
Independent Financial Adviser at R3 Wealth
Going into 2023, the options for higher loan-to-value (LTV) borrowing are going to diminish. I had an offer last week at 90% LTV for a first-time buyer and it was a struggle getting that through. It would have been much easier just three months ago. With house prices expected to fall, lenders will be looking to limit their risk, especially for borrowers with small deposits. Those still in the market will want a premium as competition decreases.
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Graham Cox
Director at Bridging Hub
It's likely many other lenders will follow suit and pull their 95% LTV deals, as the extent of house price falls become clearer by the day. But in a way, the lenders are doing borrowers with only 5% deposit a favour. If you lose your job and can't keep up with the mortgage payments, not only will you lose your home, but if the lender can't recover the full loan amount when selling the property at auction, they'll continue to pursue you for the difference. Not nice.
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Paul Neal
Mortgages & Equity Release Advisor at First Choice Financial Services
As rates increase, so does the risk for lenders. Lenders, understandably, are also concerned about falling house prices, which again exposes them. As a result, we may see a number of lenders follow suit as the purse strings tighten and the cost of living becomes more expensive. A growing number of lenders may start to see 5% as too small a cushion in the current economic climate.
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
One swallow doesn't make a summer and Virgin conducting some pretty regular repricing doesn't spell the end of the 5% deposit market. It looks pretty likely though that we'll see a slight price correction of under 10% next year, which isn't that scary in the context of 20% rises in the last two, and that will mean looking at how products are priced, but that doesn't mean lenders are pulling out of high loan to value lending.
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Amit Patel
Adviser at Trinity Finance
Risk. It's all about risk. The higher the loan to value, the greater the risk to the lender and to the borrower. If property prices fall more than 5%, borrowers will be in negative equity. This means that your property value has decreased so that you owe more than your property is worth. This can make it very difficult to move house or to remortgage onto another deal. The lender's position will be protected. If they have to resell the property they will get less money back. So for these reasons I can see why Virgin have decided to temporarily exit the market. Clearly borrowers with a smaller deposit will be impacted by this decision the most, and if anyone is to blame, then ultimately it's Liz Truss and Kwasi Kwarteng. The ramifications of their mini-Budget will continue for a while yet.
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Anil Mistry
Director and Mortgage Broker at RNR Mortgage Solutions
This is not a surprise, as what we have read in recent media is to be believed, there is an expected house price drop in the coming months. Virgin, like any lender, wants to protect the lending they have given out, so they make sure they get all its money back in the event of a repossession. This, of course, is a hammer blow to potential buyers, especially first-time buyers who, in many areas, struggle to raise the deposit. It would not be surprising for other lenders to follow the same. We could see this trend going well into 2023.