More high LTV lending central to supporting next generation of homeowners

One of the most fundamental pain points felt by any aspiring buyer is the deposit. Saving enough to put down on a house purchase isn’t easy, which is why so many end up turning to loved ones for support.

It’s not just the Bank of Mum and Dad that can help top up the deposit, but the Government too, courtesy of the Lifetime ISA. The Lifetime ISA allows savers to pocket up to £1,000 from the Treasury each year, on top of the interest paid on the money they save.

Yet there remain concerns that the Lifetime ISA isn’t delivering as hoped, which has culminated in the Treasury Select Committee launching an investigation into whether the products are “fit for purpose”. Complaints have frequently been raised about the penalty fees levied for certain withdrawals, as well as the fact the rules have not been updated in years.

For example, the cash from a Lifetime ISA cannot be used towards the purchase of a property costing more than £450,000, a cap introduced in 2017. However, since then, we have seen significant house price growth by an average of almost 32%. As a result, buyers are being frozen out of using Lifetime ISAs when buying property in various areas of the UK, particularly in the South East.

Only time will tell if such reviews lead to material changes, but it’s clear that those in Westminster are unconvinced that in their current form Lifetime ISAs are meeting the brief.

Loosening the rules

It’s notable that the Lifetime ISA is being subjected to a critical eye at the same time as talk emerges of the potential loosening of lending rules for first-time buyers. The government has met with regulators to discuss reforms which could boost economic growth, with mortgages chief among them.

Potential changes could include adapting stress testing rules and increasing the cap lenders face for how much of their mortgage book can be at higher loan to income levels.

There is obviously a balance to be found here. Nobody wants to see lenders becoming irresponsible, providing mortgages at levels that borrowers are unable to service properly, particularly after the hard work and progress seen since the financial crisis in 2008. But it is sensible to review whether the current regulations are overly cautious, and serving to hold back the homebuying prospects of those who are more than capable of paying off a mortgage.

Overcoming the deposit difficulties

Most of us are fully aware of the challenge that would-be buyers, and particularly first-time buyers, face in saving a sufficient deposit. Household budgets have inevitably come under greater strain as a result of higher living costs - it’s not that long ago that we were seeing food bills, to take just one example, rocketing at the fastest rate since the 1970s.

And while inflation is now closer to target levels, the fact is that costs are still going up, albeit more slowly.

Even if those potential purchasers do adapt their budgets so that they can put money aside, they may find that they are being outpaced by house price growth. The most recent figures from the Office for National Statistics show that in the year to November 2024, house price growth hit 3.3%, the highest level in a couple of years. Pair that with rising rental costs, which according to the ONS increased by 9.1% in the 12 months to November 2024, making it even harder for prospective first-time buyers to save.

That growth just keeps pushing up the deposits required, making it all the more challenging to access the housing ladder at all. No wonder the average age of a first-time buyer is now 34.

Delivering more options

Clearly, if saving a large deposit is becoming more difficult, then it’s vital that borrowers have access to more low-deposit options.

We have seen some positivity on this front - analysis last year from Moneyfacts suggested that the number of mortgages available to borrowers with a 5% deposit was on the rise, and significantly above the paltry numbers on offer in the wake of the mini-Budget in 2022.

However, while things are trending in the right direction, the truth is that options at 95% LTV are still relatively limited. If we are to genuinely see first-time buyers in a healthier spot in 2025 and beyond, then there will need to be more lenders coming forward to compete in this space. Those high LTV deals will need to be paired with flexible, realistic criteria so that more borrowers can truly benefit.

What do borrowers really need?

It’s welcome that the authorities are looking closely at the current situation for first-time buyers, and whether changes could be made which would boost their prospects. Less stringent rules around lending to first-time buyers, as well as updated help on saving a deposit, would surely make an impact on buyer numbers in the years ahead.

But we can’t just look to those in charge - if individual lenders are serious about supporting the next generation of homeowners, then they need to prove it in the here and now. Brokers have clients on their books today who need these mortgage products, and lenders need to step up and deliver accordingly.

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