Private Finance's Mortgage Memo - 3rd August 2022
Private Finance's Mortgage Memo
is our take on what is currently happening in the mortgage market. Our views
are often cited in several national publications, including; BBC News, The
Times, Telegraph, City AM, FT Adviser and Daily Mail, as well as a number of
key trade publications, so this should keep you ahead of the curve. If you have
any questions on any of these stories, or would like further information,
please do not hesitate to get in touch.
- Nationwide maximum loan and LTI cap increases
- Unprecedented demand for specialist lenders causing issues
- London housing market correction
Nationwide maximum loan and LTI cap increases
This week, Nationwide are increasing the maximum loan sizes on their 5-year fixed rate products for 75%, 85% and 90% loan-to-values (LTVs). They are also increasing their loan-to-income (LTI) to 5.5x for earners over £100,000 for purchases where this previously was only available for mortgage prisoners remortgaging and first time buyers.
- Compared to their current criteria, this change increases the maximum loan amount by £750,000 for 85% LTV, doubling the maximum loan amount, and by £250,000 for 90% LTV. The increases in maximum loan sizes is a significant change for them and there is only a small pool of lenders able to offer these maximum loans at these LTV.
- This was a surprising announcement given their current timescales of 9 days for initial assessment and possibly will delay current applications further. After affordability calculators have become more stringent in the wake of a cost-of-living crisis and high inflation, possibly lenders are seeing fewer borrowers capped by LTI so have greater flexibility to lend to more people in this space if affordability fits.
- It is interesting they are still implementing their normal loan to income caps for self-employed applications. Perhaps this type of borrower is seen as a higher risk in the current lending and economic environment.
Unprecedented demand for specialist lenders causing issues
Previously, we have highlighted the lengthy timescales from lenders to review cases, however recently this issue has re-emerged and become a significant issue in the specialist mortgage market. A few examples are Clydesdale, Melton Building Society, TML, Family Building Society and Darlington ranging between 15 and 21 working days.
- Some specialist lenders are not coming at too much of a premium in rate compared to mainstream lenders, with both mainstream and specialist rates currently sitting mostly in the 3%s. This has led to substantial demand for these lenders, especially as brokers are having to turn to specialist lenders more frequently as individual cases become more complex or borrowers cannot achieve the level of borrowing they require elsewhere.
- These increases in timescales are having a significant impact on brokers and clients, both mentally and financially. It could be the case where an application is submitted only to be rejected after it has taken 20 working days to review. Not only will this add anxiety on both sides, mortgage rates are also likely to increase during this time and the clients next best rate could be significantly more expensive. For example, the best available 5-year fixed rate now is at 3.16%, however six weeks ago this rate was at 2.64%. For a mortgage loan value of £500k, this is the difference of approximately £13,000 over the 5 year fixed.
London housing market correction
London was cast aside while the UK saw abnormally high housing demand and house price rises during the pandemic. Recent data from Zoopla and Hamptons suggest London’s growth isn’t going to play ‘catch-up’ any time soon.
- The suggestion of a London exodus by Hamptons is something we are seeing from many house buyers and movers, in particular first-time buyers or those constrained by income multiples and affordability. Flexible work patterns, tight affordability and changing lifestyle attitudes we believe are the three main factors for buyers moving out of the capital and trading a slightly longer commute to find a better property.
- We don’t expect house prices in London to dramatically fall, rather slowly increase. There is huge commercial opportunity in the capital, for instance the conversion of old office buildings into modern flats. London is still a major centre of culture and enterprise and as the London housing market adjusts, this will most likely attract buyers and investors back into the Capital once an equilibrium in affordability and desirability is met.
- We have seen this trend in a lot of purchasers, having to move away from where they grew up to buy something that fits them.
If you have any questions on any of these stories, or would like further information, please do not hesitate to get in touch.