Table: Can 95% LTV mortgages help first-time buyers onto the property ladder?
Region Article continues after advert | Average property price | 5% deposit | Mortgage needed after 5% deposit | Surplus/shortfall for a single applicant | Surplus/shortfall for joint applicants |
North East | £158,569 | £7,928 | £150,641 | £6,343 | £163,327 |
Yorkshire and The Humber | £209,868 | £10,493 | £199,375 | -£42,391 | £114,593 |
North West | £216,501 | £10,825 | £205,676 | -£48,692 | £108,292 |
East Midlands | £242,223 | £12,111 | £230,112 | -£73,128 | £83,856 |
West Midlands | £246,298 | £12,315 | £233,983 | -£76,999 | £79,985 |
South West | £316,262 | £15,813 | £300,449 | -£143,465 | £13,519 |
East of England | £341,979 | £17,099 | £324,880 | -£167,896 | -£10,912 |
South East | £373,223 | £18,661 | £354,562 | -£197,578 | -£40,594 |
London | £499,663 | £24,983 | £474,680 | -£317,696 | -£160,712 |
Surplus/shortfall based on income multiple of 4.49x median gross annual earnings for full-time employees in April 2023 (£34,963). Sources: UK House Price Index, March 2024; Employee earnings in the UK: 2023, ONS. | |||||
First-time buyers tended to put down an average deposit of £53,414 in 2023, according to Halifax.
The figure is between two and seven times more than the amount a 5 per cent deposit mortgage would require for an average-priced property in England.
However, showing the demand for high LTI borrowing is quite difficult, says Jordan.
“Most business comes via brokers, who know what lenders will lend. Pretty much all lenders have calculators that are available and can be used prior to application. And brokers are very good at understanding the market, and what lenders will and won’t do.
“So if someone walks in and says, ‘I'd like to borrow six times income’, the broker knows already that that's not going to meet criteria. So it doesn't really show in the statistics; decline rates on affordability probably aren't that high.”
Nationwide is not the only lender to offer higher income multiples. But unlike other lenders, the building society specifies a minimum income of £30,000 for sole applicants, and £50,000 for joint applicants for its Helping Hand mortgage.
Other lenders can require an income of at least £75,000 in order to be eligible for an income multiple of 5.5 times.
“The LTI control that is in place is effectively 15 per cent of lending by volume,” says Yorkshire Building Society’s director of mortgages, Ben Merritt. “So if you have a loan at £1mn, or you have a loan at £100,000, it's effectively the same, it's classified as one mortgage.”
FCA paper
Analysis of mortgage transactions over a four-year period from July 2012 in an Financial Conduct Authority occasional paper found changes in the composition of high LTI borrowers.
Above the 4.5 cut-off, it found an increase in the proportion of home movers and joint income applicants, and a decrease in the proportion of first-time buyers.
These changes were consistent with the increase in average loan size for high LTI mortgages, according to the paper, with home movers and joint income applicants more likely to have higher incomes.
With the LTI flow limit restricting the number of mortgages that lenders can extend at income multiples of at least 4.5, the commercial case for lenders prioritising larger loans to higher earners is clear.
But what prospective first-time buyers also contend with is a lower availability of high LTI mortgages than the flow limit will actually allow.
“With any regulation, there is always what the regulatory barrier tells you, and then a cushion to make sure that you’re within that regulatory value,” says Paul Broadhead, head of mortgages and housing at the Building Societies Association.
