Lloyds Bank (LLOY.L) is wading back into the riskier area of the mortgage market, as the UK housing sector booms.
Lloyds chief executive António Horta-Osório told journalists on Thursday that the bank was reopening applications for its ‘Lend a Hand’ mortgage, which is aimed at young people and first time buyers.
The Lend a Hand mortgage allows young people to lean on their family for help with the deposit for a property. Family members put 10% of the value of a property in a locked savings account, which enables the buyer to borrow up to 100% of the value of the property they are buying.
Lloyds first launched Lend a Hand mortgages last year but stopped accepting applications as the pandemic struck. Horta-Osório said applications would begin to reopen from Thursday.
The news came as Lloyds reported forecast-beating results that were propped up by surging activity in the property market. Lloyds extended £3.5bn ($4.6bn) of mortgages in the third quarter, reaching its highest market share of mortgage approvals in the UK since 2008.
“We are providing one out of four loans for first time buyers,” Horta-Osório said.
The return of the Lend a Hand mortgage is the first sign of thawing in the highest risk corner of the residential mortgage market. The number of mortgages on the market offering a loan-to-value (LTV) of more than 90% has fallen from over 1,100 to just 75, according to Moneyfacts data.
High loan-to-value mortgages leave banks much more exposed to house price changes. If house prices fall and a bank is forced to repossess a property and sell it, it could end up returning less than it lent against the property if its expose was above 90%. The COVID-19 pandemic prompted lenders to reduce their risk taking, Horta-Osório said.
“It is true that banks, with these uncertainties, have been more cautious with high LTV mortgages,” he told journalists.
Lloyds has decided to re-enter to 90%+ LTV market after seeing much better than expected house price growth in recent months. Recent Land Registry data showed house prices grew by 2.5% across the UK in August and Nationwide said house price growth hit 5% in September — the highest level since 2016.
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House prices have been rising thanks to booming transaction levels in the housing market. The Bank of England released data on Thursday showing residential mortgage approvals hit their highest level since 2007 last month. Brits borrowed £4.5bn to fund house purchases in September, up from £3bn in August.
Surging activity is being driven by pent-up demand post-lockdown and a temporary cut to Stamp Duty.
Earlier this year, Lloyds predicted UK house prices would fall for at least the next 12 months. On Thursday it scrapped that prediction, saying it now expects prices to grow by 2% in the final three months of 2020 and 1% in the first quarter of 2021.
The bank expects house price growth will start to tail off when the stamp duty holiday ends in March next year, before prices fall in the second half of 2021.
Rachel Springall, a financial expert at Moneyfacts, said: “It’s positive to see Lloyds Bank relaunching its ‘lend a hand’ mortgage at a time where the availability of higher loan-to-value deals has fallen, but as with any mortgage it is vital borrowers are sure it’s the right time to commit in light of the coronavirus pandemic.”