"Increasingly, we are seeing lenders use affordability as a way of standing out in a crowded market and the ways in which lenders calculate affordability are multiplying."
Over the course of 2021, average house prices have increased by more than 8% according to the November Halifax House Price Index, exceeding the average growth in total annual pay.
This has put increasing emphasis on affordability, we’ve seen more brokers making use of MBT to save time and identify new opportunities for their clients, and we have seen and worked with more lenders to evolve their affordability calculators. So, what were the five key affordability trends of 2021?
1. Increasingly diverse affordability options
Increasingly, we are seeing lenders use affordability as a way of standing out in a crowded market and the ways in which lenders calculate affordability are multiplying.
The difference between average maximum and minimum loan size for the same case increased, from £88,300 in January to £112,629 in November.
At the same time, many lenders have introduced a specialist approach for different types of customers over the last year, including professionals, CIS contractors and people earning income through umbrella companies.
Consequently, the top lender for affordability is not one of the top 10 lenders in nearly three quarters (73%) of cases
2. The return of the 95% LTV
In the early days of the pandemic, lenders limited their appetite for higher LTV loans and securing a 95% LTV mortgage was almost impossible. However, 2021 has seen the return of 95% LTV lending, boosted by the announcement of a government guarantee scheme in the March Budget, as well as lenders increasing their own appetite for risk.
In January, there was no lender availability to meet affordability on nearly 64% of enquiries at 95% LTV. By November this had fallen to just over 7%.
3. Increasing appetite for higher LTIs
The final trend for 2021 aligns with lenders increasingly using affordability as a way of attracting more business and we are seeing a growing number offering mortgages at higher loan to income (LTI) ratios. There are now 16 lenders that allow five times income at 85% LTV and above. There is speculation that the Bank of England may relax rules about LTI in the future, which will provide opportunity for lenders to offer an even more diverse range of affordability options to suit the requirements of specific groups of borrowers.
4. Buy-to-let affordability is a key battle ground
The range of affordability options available to borrowers is even more pronounced in the buy-to-let market than the residential market. For example, the difference between the average minimum and maximum loan size for buy-to-let is £253,803 vs. £112,629 for residential.
This divergence in available loan sizes is even more striking for investors in specialist properties, like HMOs and holiday lets. For HMOs the difference between the average minimum and maximum loan size was £295,636 (minimum of £164,119 and maximum of £401,384).
Researching a large number of lenders is vital in buy-to-let and we found that the comprehensive lender panel available through MBT Affordability enables buy-to-let landlords to borrow an average £82,000 more than other affordability platform.
The key output for all of these trends is that it’s even more important for brokers to carry out thorough market research in order to secure the most suitable loan size for their clients.