Key points –
- An estimated 90,000 new-build homes in the UK remain unoccupied due to low loan-to-value (LTV) ratios set by mortgage lenders, making deposits unaffordable for many, especially first-time buyers.
- The high deposit requirements have caused a stagnation in the residential property market and added significant pressure to the already strained rental sector.
- Government interventions like the mortgage guarantee scheme have seen limited uptake among lenders, failing to adequately address the deposit gap for buyers.
- Atelier, a specialist finance lender, argues that mortgage lenders should increase their LTV ratios to stimulate the housing market and make home ownership more accessible to first-time buyers.
- Despite concerns about negative equity, the overall mortgage market remains stable, with low percentages of mortgages in arrears or repossessed, suggesting room for more flexible lending practices.
In the UK, a staggering 90,000 newly built homes remain unoccupied, and the reason behind this is not just the sky-high property prices but also the stringent mortgage requirements imposed by lenders.
Specialist finance lender Atelier has pointed out a critical issue: the current low loan-to-value (LTV) ratios demanded by mortgage lenders. With the average UK house price now at a whopping £281,974, according to Halifax, a typical 75% LTV mortgage means buyers need to fork out a deposit of £70,493. This hefty sum is simply out of reach for many, especially first-time buyers who are already grappling with the effects of inflation.
The consequence? Tens of thousands of homes intended for first-time buyers are sitting empty, leading to a stagnant residential property market.
Stagnant Market and Pressured Rental Sector
This isn’t just a problem for those wanting to buy. The lack of new buyers is causing a ripple effect. The rental sector is under enormous strain as more people are unable to move into home ownership. Atelier is urging mortgage lenders to consider raising their LTV ratios. This move could potentially attract more first-time buyers, reducing pressure on the rental market and encouraging property developers to build more homes.
Government Efforts and Their Shortcomings
Government policies like the mortgage guarantee scheme aim to address this deposit gap. However, Atelier claims that the uptake among lenders is minimal. While lenders have shied away from 95% LTV mortgages in fear of borrowers falling into negative equity, Atelier argues this concern is overblown. UK Finance data shows a relatively stable mortgage market, with only 2.5% of mortgages in arrears and a mere 0.04% repossessed in Q3 of 2023.
Rethinking Mortgage LTVs
Chris Gardner, joint chief executive at Atelier, highlights the paradox. The residential property market, a key driver of the UK economy, is hindered not by planning systems but by restrictive mortgage LTVs. His solution? Mortgage lenders need to step up and offer higher LTV ratios. This move could transform the market, placing empty new-build homes in the hands of those they were built for.
Recent figures from the FCA show that only 4.45% of new mortgages in Q2 of 2023 had an LTV ratio above 90%. Gardner emphasizes that while government support is critical, it often falls short for first-time buyers who are struggling to enter the market. He argues that mortgage lending, being one of the least risky types, should be more accessible, especially during tough economic times when people prioritize mortgage payments over other expenditures.
A Call for Change
The message is clear: to rejuvenate the UK’s residential property market and help thousands get their foot on the property ladder, a shift in the approach to mortgage lending is essential. It’s time for lenders to reconsider their LTV ratios and play a more active role in resolving this growing housing dilemma.