Can we return to 'normal' in 2021?

Patrick Bamford | AmTrust Mortgage & Credit
20th November 2020
patrick bamford genworth
"At the heart of all this, appears to be two clear issues: a significant drop in high LTV products and the much higher thresholds that certain borrower types must now get to in order to be considered credit-worthy."

What if this was your first experience of the mortgage market?

You decide you’d like to purchase your own home, you save up for a deposit knowing the type of property you’d like and its potential cost, and – just as luck would have it – when you reach what you think is a strong deposit amount, let’s say 10%, this coincides with a stamp duty holiday that will mean you don’t have to fork out thousands on this tax.

You can put that saved money perhaps towards your deposit, or perhaps keep it for other fees, or indeed spend it on a range of things for your new home.

Anyway, you’re at the point where things look good to progress, and you think you’d better look at mortgage options. You get in contact with an adviser and begin to run through your details and numbers with them – after a short while, what you anticipated being nothing more than a tick-box exercise to get a mortgage offer, soon begins to look like something very different.

You knew that the market had changed in the past six months, but you weren’t quite prepared to hear the news that – as things stand – your deposit isn’t enough, or you don’t meet the affordability criteria that lenders currently have, or that rates are much higher than you anticipated and your monthly payments would not be achievable, or all of the above.

And that’s the situation if you’re a full-time employee, let alone someone who might be self-employed or a contract worker or reliant on bonuses and commission. What if you were put on furlough during 2020 but are now working again? What if you’d already borrowed money from the Bank of Mum & Dad and there were no other sources of greater deposit monies to go after?

In effect, and I know advisers will be only too familiar with this situation, you’re a first-time buyer in name only. You’re a potential purchaser who is being told they won’t qualify for a mortgage at the moment, despite – on the surface – it looking like the very best chance of you securing a property and also saving on the stamp duty as well. You’ve been ‘rejected’ for a mortgage but it’ll probably feel like you weren’t even in the running for one in the first place.

One in three first-time buyers, according to research from Aldermore, have experienced that kind of mortgage rejection at least once. 10% have been rejected more than once, although this would probably be higher if those initially ‘shown the door’ had ever gone back. I suspect some will just feel it’s never going to happen and so end their journey there and then – indeed, 62% said they feel that buying a home feels unachievable at the moment.

The big issue will be around what they could possibly do in order to move their property dreams forward. Is it the fact their deposit isn’t big enough? As mentioned, unless you have access to BOMAD or can somehow save every penny earned, then this is going to take some time to achieve.

Or are you simply hindered by your own working situation which may never change? For instance, the top reason cited by 20% of those who have been rejected for a mortgage was that they were ‘self-employed, had irregular income or were a contract worker’. Is that going to be possible to change for large numbers in this situation? Probably not – time may give them the chance to earn more, or we may see a more flexible approach to these types of borrowers taken by lenders, but how long are you willing to wait?

Government schemes may offer you a way to purchase but these are limited in scope and limited in the type of property you can buy. If you want a new-build then there’s always Help to Buy, but what if you don’t? Will the Government’s new scheme – and there is no detail at all to give on this – ride to your rescue? It may do but who knows what it will look like, when it will appear and what it might involve for borrowers?

At the heart of all this, appears to be two clear issues: a significant drop in high LTV products and the much higher thresholds that certain borrower types must now get to in order to be considered credit-worthy. We’re all no doubt familiar with why lenders are opting for this approach, and I have some sympathy given what they have been asked to do in 2020 – issuing business loans/covering mortgage payment deferrals/operational issues brought on by Covid-19 and the lockdown, and a lot more besides.

We all fully understand what this has meant with many lenders ‘fighting’ with one arm tied behind their back. However, at some point this needs to be a trend that is turned around, and the longer its left, the bigger the problem which is being stored up for the months and years to come.

A lack of first-time buyers is a lack of new-blood into the market and at some point this becomes an ever-decreasing circle that eventually peters out entirely. No-one is expecting immediate action but the new year should certainly act as a jumping off point for the 2020 approach adopted by many.

We need to get back to ‘normal’ high LTVs of 90/95%, and the means by which this can be achieved such as private mortgage insurance, and we need to understand the changing nature of first-time borrowers, especially in terms of their working arrangements and how they can afford to pay a mortgage. No-one is saying lend to those who can’t pay back but we must lend to those who can, and the sooner, the better.


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