Low LTV ratios and the rise of empty homes

With the latest estimates revealing that up to 90,000 new build homes sit empty across the UK due to mortgage LTV restrictions, specialist finance lender Atelier suggests that Higher LTVs might be the answer.

Related topics:  Property,  New Build,  Empty Homes
Property | Reporter
24th November 2023
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"Hard-working individuals who cannot bridge the deposit gap are left at the mercy of the rental market, adding further fuel to the current rental crisis and depriving individuals of home ownership"
- Chris Gardner - Atelier

With the latest figures from Halifax revealing that the average UK house price now stands at £281,974, standard loan-to-value ratios of 75% require buyers to assemble a deposit of £70,493.

Such a sum is beyond the reach of many, especially first-time buyers whose budgets have been eroded by inflation, meaning tens of thousands of properties marketed at those looking to buy their first home are left empty. Without a flow of new buyers, the residential property market remains stagnant.

With thousands of buyers being locked out of the market, Atelier is calling on mortgage lenders to increase their LTV ratios to attract first buyers away from the rented sector which is under enormous pressure. That in turn will encourage property developers to build more, at a time when more, not less, homes need to be built, despite national housebuilding targets having been left by the wayside.

While Government policies, such as the mortgage guarantee scheme, are attempting to plug this deposit shortfall, take-up amongst lenders remains minimal.

Mortgage lenders had previously retreated from 95% LTV mortgages, citing the potential for borrowers to fall into negative equity. These fears are overstated given more modest falls in UK house prices than originally predicted.

In fact, recent data from UK Finance reported that in the third quarter of 2023, only 2.5% of mortgages were in arrears and only 0.04% had been repossessed.

Chris Gardner, Joint CEO at Atelier, says: “The residential property market has always been an essential driver of the UK economy. So why are there still so many barriers for first-time buyers trying to get on the ladder?

"Hard-working individuals who cannot bridge the deposit gap are left at the mercy of the rental market, adding further fuel to the current rental crisis and depriving individuals of home ownership.

"For all of the talk of a restrictive planning system stifling the property market, the real culprit is in fact restrictive mortgage LTVs. As long as they remain low, the pool of property purchasers will be limited.

“The solution is simple but we cannot wait for the government to act. Higher LTVs from mortgage lenders would quickly place empty new-build properties into the hands of those they were originally built for and unlock the current market stasis.”

While some mortgage lenders, such as Newcastle Building Society, have re-entered the 95% LTV market, recent figures from the FCA show that in the second quarter of 2023, only 4.45% of new mortgages had an LTV ratio of above 90%.

Chris concludes: “While Government support is always the focus of the first-time buyer debate, it is often not enough to meet the needs of first-time buyers who can’t get a foot in the door. For the benefit of everyone, the market needs to lend a helping hand and mortgage lenders are sitting on the solution.

"We all know that mortgage lending is one of the least risky types of lending. In tough economic conditions, every possible spend is cut before mortgage payments are impacted. Lenders should take action now.”

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