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It is time to loosen lending policies and truly help buyers – Bamford

by: Patrick Bamford, head of international business development at Qualis Credit Risk, part of AmTrust International
  • 15/05/2024
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It is time to loosen lending policies and truly help buyers – Bamford
Support for the housing market, particularly in terms of support for homebuyers, often tends to be couched in terms of stamp duty reform or, more recently, a replacement for Help to Buy, or a further extension of the government's mortgage guarantee scheme.

However, you might well argue that for certain borrower demographics – perhaps first-time buyers – this feels a little like tinkering around the edges, although who wouldn’t want to see more affordable housing built, particularly in the house price, wage and rental environment we currently have?

Clearly, there remain some – often insurmountable – hurdles for would-be first-time buyers, not least in terms of their ability to get on the ladder, especially if they don’t have the support of parents or grandparents, or if they want to own a home in fewer than five years. 

 

Rethinking restrictive lending policies 

In that context, it was very interesting to read the Building Societies Association’s (BSA’s) recent report on first-time buyers, which specifically included the suggestion that the mutual sector is being hampered by regulation, designed quite rightly in the aftermath of the financial crisis, but perhaps now not fit for purpose. 

The BSA suggests the 15% cap on lending above four-and-a-half times income needs reviewing, as it “limited the use of higher-loan-to-value (LTV) mortgages in more expensive housing markets”. 

It wants the Financial Policy Committee (FPC) to look at this policy, with regards to first-time buyers, suggesting the cap may be “less relevant today given higher mortgage rates”. The BSA appears to want the limit adjusted for first-time buyers, and it also highlights that, while the number of first-time buyer mortgages has improved, those using higher LTVs had not really recovered to pre-financial crisis numbers. 

There were other suggestions firmly aimed at first-timers, not least increasing the number of affordable homes, and aiding lenders so they could offer more products to a more diverse range of potential borrowers. It wants to see an independent review and a long-term strategy developed in order to increase the number of first-timers. 

Crucially, this strategy would work best in a non-partisan context. We all would surely agree that this must work over decades, rather than one Parliament, if we are to get the housing supply and finance products we need, as well as ensure that those who can’t rely on a parent still have the same opportunity to purchase.

 

Innovation from building societies 

What makes this perhaps more pertinent is the building society sector has not exactly shied away from at least attempting to support more first-time buyers into their first homes.

Indeed, you might strongly argue that mutuals have done more than most in order to try and square the first-time buyer circle. For example, taking rental payments into account, not requiring a deposit, offering higher-LTV mortgages, using private mortgage insurance in order to mitigate the risk, being willing to offer guarantor mortgages, offering joint borrower sole proprietor (JBSP) products, and the like. 

However, via the BSA, these lenders clearly think they could do more if the regulations were reviewed and if some of the obstacles they believe are present were removed. 

It’s hard not to agree with such a stance.

After all, we are now almost 15 years on from the financial crisis, and while such regulations were obviously needed in the wake of that period, we are perhaps now in danger of holding onto a system that is too strict, particularly in the context of buying a first home, which is now as difficult and as expensive as it perhaps has ever been.

15 years of house price gains, bolstered by an inability to hit new building targets, mean that while the demand to buy is still there, being in a position to do so is another thing entirely, hindered specifically in terms of meeting deposit requirements, meeting affordability criteria in a higher rate environment, finding a home in the first place, and periods where high-LTV mortgages dropped in number. 

Anything that could therefore be done to provide mutuals, and other lenders, with the opportunity to work their mortgage book a little more in favour of first-timers should be welcomed, especially when they can marry this perceived greater risk with a mitigant such as mortgage insurance. 

Overall, after a long period of time when the strictness of these rules was warranted, we are now likely to be in a position where they could, at the least, be loosened for certain borrower types. First-time buyers would be the obvious one to begin with, and by doing so, we should hopefully be able to support more people into their first home.

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