But change brings opportunities for those nimble enough to take advantage.
Being in the mortgage business, Hinckley & Rugby is well used (after the past decade) to change and how to adapt. And we are not alone. The second tier of building societies has shown itself to be populated by innovators.
In 2016’s year of change it has been the medium-sized societies emerging as leaders, serving the needs of communities going through an evolution in demographics and in the balance between renting and home ownership.
From Leek to Ipswich, Furness to Hanley, and, closer to our heartlands, Melton and Market Harborough, there has been a consistently creative approach to fulfilling the changing needs of customers, be they owner occupiers or landlords.
For older borrowers, it is mutuals such as Leek and Dudley that are catering for later life lending by having no upper age limit.
Family-assisted mortgages have gained traction in 2016. The Family Building Society pioneered 95% loan-to-value (LTV) mortgages where a family member either lodges savings or places a charge on their own residence. At Hinckley & Rugby we offer guarantor mortgages to 90% or joint borrower/sole proprietor mortgages to 95%.
It is our tier of societies that go to higher LTVs on new builds. We and Newbury go to 90% on both houses and flats.
What is it that these innovator mutuals have in common? I think it’s to do with their size, their flatter management structures, their quick decision making, their predominantly manual underwriting processes. It’s also about the hunger that comes with a simple business model – they must write mortgage business to prosper, regardless of whether the wider market is waxing or waning.
The most recent snapshot of that wider picture revealed that in 2016’s third quarter the number of mortgages approved by building societies was up 6% on the same period last year, whereas across the market as a whole the number of mortgages approved was down by 5%.
I believe our constituency of societies sees opportunities where other types of lenders see obstacles, take regulation (no, please, take it!).
The Mortgage Credit Directive introduced a plethora of new rules and obligations. Yet the second tier mutuals responded in a positive way. For instance, by offering foreign currency loans and consumer buy-to-let lending.
Looking ahead into 2017, the Prudential Regulation Authority’s January changes to buy-to-let interest coverage ratios will see the whole industry stressing the loan at least at 5.5% with a coverage requirement of around 145%. This will provide an opportunity for lenders prepared to consider personal income alongside rental income. Often that will be the smaller building societies.
I’ve seen mutuals more ready to use transitional rules in the past. I envisage mutuals will be more likely to be similarly flexible with buy-to-let borrowers when the PRA’s rules land on New Year’s Day. I am not advocating high-risk lending here. Underwriting standards will remain robust, for what are often more complex applications given a high level of manual consideration.
With best wishes for a happy and peaceful Christmas, and a prosperous 2017.
