Mortgages at 90 per cent loan-to-value are likely to remain scarce until we are past the anticipated spike in unemployment, experts have warned.

Speaking at a recent video conference organised by St James’s Place, commentators set out a number of reasons why lenders have retreated from high LTV lending, which included staffing capacity issues, concerns over house prices and economic uncertainty.

Aldermore group managing director of retail finance Damian Thompson said that lenders have had to cope with many existing customers calling and seeking payment holidays or seeking other help, which has reduced their ability to take on new business.

He said: “Lenders have a fixed capacity and you can plan for a downturn, but no one planned for a Covid downturn.

“What we’re seeing from existing customers is some real challenges in their day-to-day lives and that’s sucking up quite a lot of resources and time.  “There has also been new legislation coming on board around breathing space.

“We have found that all this complexity drives significant conversations with customers, which is holding back lenders from offering 90 per cent LTV.”

Thompson added: “Now, I would love to be lending 90 per cent tomorrow, but it will only come back when lenders get a sense that we are really through the spike of unemployment and we are clear about how customers are being affected.

“With most couples, if one person is out of work the household is struggling to afford their mortgage, so you need to look at unemployment and understand the full gamut of where it is going to get to.

“Some predictions say it is going to get to 10 per cent – it is nowhere near there yet, but will it get there? Yes.

“Therefore when you’re lending you want to make sure that you’re protected against that.

“I want to be at 90 per cent, I want to even be at 95 per cent, I’ve got products waiting and ready to roll off the shelves, but I have to be protecting those existing customers.”

Intermediary Mortgage Lenders Association chair and Vida Homeloans managing director of mortgages Louisa Sedgwick believes that 90 per cent lending is likely to come back in a focussed way, targeting particular groups of borrowers who are in safe jobs with a reliable income stream.

She said: “What I think will happen is that the 90 per cent LTV deals will be customer specific rather than generic. 

“At the minute 90 per cent LTV products are generic to most customers, but I think we are going to start to see risk-based pricing.

“Lenders will come out with products that might not necessarily be as cheap as we have seen historically at higher LTVs, but they will be based on the fact that they have longevity in their experience with an existing customer.

“They may also lend on the basis that the customer is likely to remain in their employment for a long period of time, because why would you not want to lend 90 per cent LTV to a GP, for example?

“So you might find that lenders come back with more bespoke pricing and more bespoke LTVs based on customers’ circumstances.”

However Sedgwick said that currently capital markets were not comfortable with the risks of high LTV mortgages and so those specialist lenders that are reliant on wholesale funding are unlikely to be able to return to 90 per cent lending in the short term.

Legal & General head of lender relationships Danny Belton said: “What is happening economically in terms of job losses is definitely going to be a concern for lenders, but the other bit we are hiding behind his house prices. “We have heard from some lenders that they expected a fall of up to 25 per cent, which hasn’t happened yet and we have heard from the Centre for Economics and Business Research that it predicts prices could drop 14 per cent next year. 

“The risk people in lenders are going to be worried about this. 

“Personally I still think all the time that there is more demand than supply, house prices will remain reasonably strong, but things do change and we have to be mindful of that.”

Belton added that if transactions start to slow in the new year allowing lenders to get on top of capacity issues, they may then be willing to reduce prices and potentially move up the risk scale to higher LTVs again, but wider economic factors will have to fall into line for them to be happy to do so.

Association of Mortgage Intermediaries chief executive Robert Sinclair said that he had been in discussions with policymakers about how to help boost the high-LTV market.

He said: “In discussions with Treasury, we were talking to them in particular about how they felt lenders were dealing with the crisis at the moment.

“Given that the Bank of England funding has been quite generous to lenders and liquidity has been pumped in so that lending markets could be active, were they happy with the reaction of the market? 

“I think we’re going to see continuing pressure coming on the big lenders for their failure to meet their operational capacity requirements. 

“So hiding behind the fact that for six months they have had struggles with having to deal with payment holidays and people working from home…

“We are six months in and in all likelihood we have got this for six months more, so I would expect pressure to be applied to the bigger lenders to get their houses in order a bit more.  

“The government’s intention is that they would want to see lending in those higher LTV areas rather than being restricted to where it is at the moment because of rationing effectively.

“Whether that is rationing because of capacity of rationing because of risk is an interesting debate, but the other discussion we have been having with them is whether they can bring back some form of Help to Buy mortgage indemnity guarantee to replace the stamp duty holiday. 

“It would give more support to the market in those higher LTV areas and I think that’s something that is on the books for consideration by both Treasury and the Ministry of Housing, Communities and Local Government.”