Supply needs to match demand

Bob Hunt

Bob Hunt

2 March 2021

This blog has been purposefully written before the budget - not because I anticipate it will be a 'damp squib' for the housing and mortgage markets (far from it) but because I wanted to review what I think is required, in terms of government intervention, before seeing what is announced.

In a sense, and judging by the newspaper reports, we already know what is coming. A stamp duty extension looks inevitable, although the exact detail around it remains up in the air, and we've already been told that the government will effectively introduce 'Son of Help to Buy 2' - a new mortgage guarantee scheme offered to lenders in order to help bring back higher, notably 95%, LTV mortgages.

Are both these elements welcome? Absolutely. The arguments for a stamp duty extension are well-worn, and need not be repeated here, but just to say that the devil will be in the detail, and the government might want to be careful about introducing an extension that can be accessed by thousands of new purchasers.

So, what about the mortgage guarantee element? Well, there's no doubt that the market has suffered from a dearth of high LTV options since the first lockdown last year.

It's my understanding that the lenders have specifically asked for a resurrection of the guarantee element of Help to Buy in order to help them bridge that risk gap that they have deemed too wide to offer 95% LTV loans themselves. As we all know, there has been a move towards greater numbers of 90% LTV products, and pricing has become keener, but (as I write) the only 5% deposit options require parental or guarantor support, and there doesn't appear to be any further movement in that direction, without a government guarantee.

There is, of course, a point to be made here, in that lenders could have opted for a private mortgage insurance option if they were that desperate to offer higher LTV loans over the past six months.

The fact they haven't perhaps tells you that there wasn't a significant appetite to be active in this space, especially when for many lenders they have for the most part operated (and done a good job) at maximum capacity with a majority of underwriting and processing staff continuing with WFH.

Not to put too fine a point on it, they have done relatively well opting for, what they deem, lower-risk borrowers, and as commercial enterprises that is completely their prerogative.

What may well have happened is that the government itself has asked lenders to reconsider their high LTV product offerings, and they have pushed back in suggesting the only way they will move this way - in the short-term - is via a government guarantee.

It will be interesting to see what kind of take-up there will be and initially I wondered whether loans generated via the scheme would only be available to first-time buyers.

Reading up on this however it appears it will be open to existing homeowners as well, but there are clearly questions about the level of lending that will be completed, even with the scheme.

Perhaps lenders utilising the guarantee will deliver a competitive market and, as we did see when Help to Buy 2 was introduced, this gave other lenders (many not even using the scheme) to look at other insurance options and a much better 95% LTV market was able to be forged.

These types of mortgages are undoubtedly required - talk to most people about how they got on the property ladder and they are likely to say via a high LTV product, although there are clearly other issues at play here which will work differently in today's environment.

And that leaves a number of questions for this budget and this government because even with access to a 5% deposit, the average buyer is still going to need £11.5k - based on Nationwide's recent average house price figure. Of course, for many, it's better than £23k for a 10% deposit, but it is still substantial.

But, other issues also remain, not least the average income to average house price which used to be x2/x2.5 and, in many regions of the country is now at least x6. Plus, of course, there is much to say that the government's intervention merely increases demand, which given the lack of supply, will only drive prices up further.

It will not take a genius to work out that property supply is perhaps the fundamental driver in all this.

Reading this blog counts towards your CPD!

Click here to add this session to your Paradigm CPD log.

20 December 2021

The public gets what the Public wants’ - or do they?

10 December 2021

Consultation Paper CP 21/36 “A new Consumer Duty”

7 December 2021

FCA’s Consumer Duty seems like a costly exercise for advisers

2 December 2021

Cyber crime update and reporting requirements

9 November 2021

Who will buy...?

1 November 2021

FCA: Remote working expectations for firms

18 October 2021

Remortgaging: Timing may not even matter this time

8 October 2021

Make stamp duty work for everyone

4 October 2021

Time to talk

1 October 2021

The FCA’s plans to tackle investment harm

27 September 2021

Lack of housing stock means brokers need to work client banks harder

3 September 2021

Let technology do the work in the fast-paced mortgage environment

2 September 2021

Time of new beginnings

18 August 2021

The proof of the pudding

12 August 2021

FCA pension transfer advice: don’t be confused by the label

12 August 2021

Time for a change?

26 July 2021

The engagement conundrum

26 July 2021

"I can’t do it all"

7 July 2021

Paused for breath

6 July 2021

SMCR part two - conduct questions

28 June 2021

Introducing a new us!

17 June 2021

Patches - what are they and why are they so important

17 June 2021

Multi-factor authentication - the simple solution

8 June 2021

SMCR part one - time to take stock

27 May 2021

A reminder of the 'good old bad old' days of protection tech

18 May 2021

Let's not consider any 'reduction' in these as some sort of victory

5 May 2021

Simple methods-calculating client profitability

30 April 2021

If the pandemic has been the mother of invention, it's time to carry on

22 April 2021

Opportunities abound in the market

19 April 2021

Early Movers are Shaping the 95% LTV Market

13 April 2021

Here's a conundrum

8 April 2021

Advice processes for vulnerable clients

29 March 2021

Vulnerable signs for advice firms to watch out for

5 March 2021

Lenders have not got to grips with how the pandemic impacted borrowers

2 March 2021

How Covid has changed our financial lives

2 March 2021

Supply needs to match demand

19 February 2021

Don't overlook product transfers

16 February 2021

Creating a plan for good CPD

5 February 2021

Stamp duty debate a black hole

2 February 2021

Industry wide levy is a head scratcher



APCC Member
Paradigm Consulting is a Member of the Association of Professional Compliance Consultants

Paradigm Consulting is a trading name of Paradigm Partners Ltd
Office address: Paradigm Partners Ltd, Paradigm House, Brooke Court, Wilmslow, Cheshire, SK9 3ND
Paradigm Partners Ltd is registered in England and Wales. No.09902499. Registered Office: As above

Paradigm Mortgage Services LLP
Office address: Wellington House, Starley Way, Birmingham International Park, Solihull, B37 7HB
Registered in England and Wales. Company No: OC323403. Registered Office: Paradigm House, Brooke Court, Lower Meadow Road, Wilmslow, SK9 3ND
Paradigm Mortgage Services LLP is a Limited Liability Partnership.

Paradigm Protect is a trading name of Paradigm Mortgage Services LLP
Office address: Wellington House, Starley Way, Birmingham International Park, Solihull, B37 7HB
Paradigm Mortgage Services LLP is registered in England and Wales. Company No: OC323403. Registered Office: Paradigm House, Brooke Court, Lower Meadow Road, Wilmslow, SK9 3ND
Paradigm Mortgage Services LLP is a Limited Liability Partnership.