Santander’s recent decision to launch a 98% LTV mortgage for first-time buyers will no doubt prompt plenty of debate, much of it focused on risk, pricing and whether the market is ready to support borrowing at this level again.
Of course, these high(er) LTV products are already available, albeit in relatively low numbers. At the current count we have approximately 10 100% LTV products but lenders might fancy that even a 2% deposit/skin in the game approach, is better than no deposit at all. Might this be the start of a raft of further options in this space?
A two-tier FTB market?
Those points matter, but they are perhaps not the most important part of this story. What really stands out is what this product might well be saying about the shape of the first-time buyer market, the growing divide within it, and the way lenders are starting to respond to a very real and well-evidenced need.
The recent Moneyfacts data makes that divide hard to ignore. It says around 42% of first-time buyers are looking for mortgages above 90% LTV, while close to half are searching for deals below 75% LTV. That is not a gradual spread. It is a clear split between those who can access large deposits and those who cannot.
In simple terms, one group can bring 25% to 40% to the table, while another is struggling to get together 5%.
Family support likely to be a game-changer
It is difficult to talk about this split without acknowledging the role of family support. While not universal, buyers with deposits of that size are rarely relying on savings alone, particularly in a high rent, high cost environment.
Gifts, early inheritance, or the ability to live at home rent free all make a difference. For those without that support, saving a meaningful deposit is often the single biggest barrier to home ownership, even where income, credit history and employment are sound.
This is where Santander’s new product fits. It does not contradict the Moneyfacts findings. It sits within them. It feels like it is aimed squarely at the top end of the high LTV group, those buyers who have the ability to service a mortgage but cannot bridge the deposit gap through family help. For these borrowers, a 2% deposit is not a preference. It is a ceiling.
A broker-only offering
One of the most positive and perhaps under-discussed aspects of the Santander product is that it is only available through mortgage brokers. Again, that really matters.
These are first-time buyers borrowing at the very highest LTVs available in the market, perhaps with limited financial resilience or potentially little prior experience of long-term debt. Ensuring they receive full advice, suitability checks and ongoing support is not a nice extra. It is essential.
Plus, of course, at that stage in a life cycle, protection is highly important. Using an adviser means the client can secure access to, at the very least, a 12-month unemployment cover policy and protection of the mortgage payments itself. We should not underestimate the importance of advice in the context of protection for first-timers.
In lieu of there being a system where all first-time buyers are required to take mandatory mortgage advice, lenders can play their part in improving outcomes.
Restricting access to first-time buyer products to the broker distribution channel is a practical and effective way of doing so. It ensures borrowers are supported by professionals who can assess suitability, stress affordability properly and explain the longer term implications of borrowing at high LTVs, rather than leaving customers to make complex decisions alone through a direct route.
By choosing this approach, lenders are helping to reduce the risk of buyers ending up on the wrong product or taking on commitments that do not fit their circumstances. It also supports better outcomes over time, including planning for future remortgaging and reducing LTV where possible. In a market where customer outcomes are under close regulatory and public scrutiny, this is a sensible and responsible stance.
A dominant borrower demographic?
There is also perhaps a wider signal here for lenders. The Moneyfacts data shows first-time buyers are a hugely important borrower group, and a sector that is becoming more competitive.
Lenders cannot rely solely on borrowers with large deposits, because that pool is finite and often heavily contested. High LTV lending is therefore likely to grow, not because lenders are chasing risk, but because they are responding to demand that already exists.
Over the next year, competition for first-time buyers is likely to increase. Lenders that can combine sensible criteria, clear pricing and strong backing for the advised channel will be better placed to serve this market while managing risk. Those that do not may find themselves missing out on a borrower group that will shape lending volumes for some time.
