That is unless all stakeholders have a bout of collective amnesia and decide that, for example, heavy adverse sub-prime mortgages are a good idea again and/or self-certification for the employed is an underserved sector which now needs addressing.
Those who lived and worked through that tumultuous time might not forget the damage that was done, and therefore be keen not to repeat the mistakes of the past, but let’s not underestimate the potential for the next generation of mortgage workers to pursue such avenues in the name of innovation. I suspect however they will come up against a far more stringent regulator which will be more committed to stopping such potentially damaging products reappearing on its watch.
The regulatory changes introduced since the credit crunch have been designed of course to make sure that such products do not see the light of day or that lenders push themselves too far up the risk curve with insufficient capital to deal with any subsequent bad loans. We work within a regulatory framework which should mean such ‘innovation’ is completely off the agenda and, for the most part, this is a very good thing.
Which is not to say of course that we should accept a purely ‘vanilla’ mortgage market – one that only caters to, what we might refer to as, ‘whiter than white prime borrowers’ who come with 40%-plus equity or deposit levels. In the immediate months following the credit crunch it was understandable that mainstream lenders were predominantly only interested in this type of lending because this was the lowest-risk business to get on the books.
Now, however, we need a market which caters for a changing demographic; we need mortgages which are suitable for many different borrowers with many different needs. Undoubtedly, we have seen some movement recently in order to accommodate these types of borrowers but there is still perhaps much further to go.
Take, for instance, those who are self-employed. I’s not untrue to say that, until just a few months ago, this was an under-served group. Even now, with a number of lenders (re)entering this sector we would be hard-pressed to find a plethora of product options available. The good news is that lenders who are offering these mortgages are refining their criteria to help those who are relatively new to self-employment or contractor work.
And there are a growing number in this group. Last August the ONS revealed that the number of people categorised as self-employed was at a 40-year high. 4.6 million people – 15% of the total workforce – are now in this category, up from 13% at the start of the crisis back in 2008. Therefore, it is important that the lending community respond to this and, while ensuring they take the full risk into account, look at ways to support the mortgage requirements of the self-employed. To that end, we have seen a more flexible approach, for example, to the number of year’s accounts required with some lenders now only requiring one year. While other lenders will take into account the previous work employment of relatively new contractors. It is a step in the right direction and hopefully more lenders will move into the area.
And it is with these borrowers that intermediaries are in a prime position to help deliver the products they need. It’s unarguable that the intermediary sector is becoming the dominant distribution force and, with a greater influence, it should be able to establish a two-way conversation with lenders to help bring into the market the products borrowers need. Again, we are not suggesting pressure be placed on lenders to deliver 125% mortgages however sensible tweaks to criteria which can help credit-worthy prime borrowers secure their homes can perhaps be delivered.
This is a marketplace which needs ongoing dialogue and collaboration between lenders, advisers and all other stakeholders in order to function properly. It seems that this is the right time to ensure those communication channels are not just open but actively being used. By doing this we can have a mortgage market which is truly fit for purpose and stands on firm foundations
