Income multiple needed by first-time buyers running at 5.6 times – Nationwide
However, it said 3.2 times was now looking like a distant memory with that multiple having not held true for about 20 years.
The 75 per cent rise in multiples shows how fast house prices in the UK have raced away from average incomes over the past two decades.
The insight was drawn from Nationwide’s own data, and was released ahead of a research report looking at housing for the post-pandemic years, Future of Home, which the lender has produced with Ipsos MORI and will publish on Monday.
David Hollingworth, associate director communications, L&C Mortgages, said: “We talk a lot about deals for first-time buyers with smaller deposits, but with the multiple so high it shines a light on the fact that a big blocker is because borrowers’ affordability caps out at below the prices they might have to pay.”
Other highlights picked out ahead of the report’s launch included findings of research by Ipsos MORI such as the number of households occupied by homeowners is now 57 per cent, down from 64 per cent in 2003.
Some 63 per cent of people in the UK consider themselves to be living through a housing crisis, while 68 per cent of people renting believe they will never afford to buy a home.
Some 48 per cent of renters said their experience during the pandemic had made owning their own home more important than it was 18 months ago.
About 25 per cent of people believed the pandemic had worsened the housing crisis.
Affordability was a huge challenge for renters, with 41 per cent saying that getting together a deposit and meeting other upfront purchase costs made it unaffordable to buy a home.
Hollingworth said: “In the main, lenders say ‘this is our affordability test’. They may offer a graduated income multiple. But they will push down on multiples at the higher loan to values (LTVs).”
He welcomed Nationwide’s Helping Hand proposition, launched in April, as a well-balanced attempt to address these challenges. The product offers 5.5 times salary to first-time buyers up to 90 per cent LTV, on a five or 10-year fixed rate.
Sara Bennison, chief product and marketing officer at Nationwide, said: “Our research, and cross industry conversations, show that the pandemic has exacerbated long-standing issues in the housing market.
“Layer onto that the enormous challenge of making the UK’s homes net zero and the challenge ahead becomes even greater.
“The need for more homes, more affordable homes and more sustainable homes are some of the critical questions we want to address,” Bennison said.
Lender’s attitude to buy now pay later services ‘constantly changing’, brokers say
Brokers canvassed by Mortgage Solutions said they had seen some examples of borrowers being declined for using such services, but that lender’s attitudes were regularly changing.
Mojo Mortgages director of mortgages, Cassie Stephenson, said using such BNPL services could trigger “automated red flags” for some lenders, but they were constantly updating reporting and credit checks to ensure borrowers could make repayments.
“Each application is reviewed by lenders on a case-by-case basis so there is a chance that two first-time buyers both with a £1,000 worth of Klarna payments pending could get different decisions when it comes to mortgage eligibility. BNPL is just a snippet of an individual’s financial history,” she said.
She continued: “It is an area that’s changing all the time and if balances are paid on time, you shouldn’t currently have too many problems when it comes to your application.”
BNPL has been growing in popularity in the UK over the past few years, with a Which? survey in June estimating that around a third of the UK adult population had used a provider like Klarna, Clearpay or Laybuy.
These platforms allow users to make purchases and then spread payments over a set period, often interest-free.
John Charcol’s product technical manager Nick Morrey said whilst he had seen some lenders declining mortgages because they spotted BNPL services on bank statements, the decision was usually down to a combination of things.
He said: “As much as schemes like Klarna are helpful for people looking to make certain purchases, they are sometimes viewed as a sign that someone is living outside their net disposable income means by using credit to buy things they otherwise couldn’t afford or would have to wait months to pay for.”
He said it showed a “profile of financial habits” that some lenders might see as a higher level of risk compared with those who did not use them.
“The ultimate decision is usually down to the overall credit scoring model being applied and applicants who use these schemes regularly are likely to have other aspects of their applications that cause the overall score to be too low to pass,” he explained.
Stephenson noted that it wasn’t just first-time borrowers who could be negatively impacted by using BNPL products, but insisted those with existing mortgage may be in a better position.
She said: “All types of debt could affect any mortgage application whether that be a first-buyer, remortgage, buy to let and so on.
“The use of BNPL services could be seen as questionable on affordability to lenders and this where those with an existing mortgage could have an advantage as they could stay with the same lender or may be able to use equity to pay off any debt,” she explained.
What can borrowers do?
According to Stephenson, it is vital for borrowers to keep tabs on how lenders judge eligibility, particularly as BNPL is expected to grow in scale and usage.
She said: “The main thing to remember when contemplating a purchase in the run up to your mortgage application is deciding whether you really need it right now and how quick will it take you to pay off any balance from borrowing?”
Trussle’s head of mortgages Miles Robinson added that it was important for lenders to see a “history of responsibility” when it came to personal finances, therefore it was vital to have a good credit rating.
He added: “There are many ways to achieve a good credit score, including taking a break from applying for credit, paying off debts, keeping credit card borrowing low, and even applying to be on the electoral roll.
“You can also check your rating by getting a free credit report from a credit reference agency. Asking for your credit report does not affect your rating and the report should show you what’s impacting your score, which could help you improve it.”
Response of BNPL service providers
Founder of AppToPay James Jones said part of the issue could be from BNPL providers not sharing their account usage and repayment data with credit agencies like Equifax and Experian, which makes it more difficult for mortgage lenders to perform creditworthiness or affordability checks.
He said: “Using Open Banking or by looking at an applicant’s bank statements, the mortgage provider will be able to see an individual uses BNPL products but they have no way of predicting future usage or seeing the outcome of past use – for example, was the debt satisfied or not.”
Jones added that AppToPay is regulated by the Financial Conduct Authority (FCA), so account usage and repayment data is sent to credit agencies on a monthly basis.
Earlier this year, the UK Treasury said BNPL firms would come under the supervision of the FCA and require firms to conduct affordability checks before lending. Customers will also be able to make complaints to the Financial Ombudsman.
Many BNPL providers are unregulated by the FCA as they are exempt under the Financial Services and Markets Act 2000.
A Klarna spokesperson said it was “disappointed” that a small number of its customers had their mortgage applications declined by lenders.
The spokesperson added: “This is yet another example of traditional providers failing to understand modern consumers and how they manage their finances.
“People use Klarna and our BNPL products to access short-term credit that enables them to spread the cost of a one-off purchase for up to 60 days.”
The spokesperson added that to say this was indicative of people living beyond their means was “unfounded” and the majority of customers paid back on time and in full.
“To punish them for accessing new, short-term and low risk payment services is grossly unfair and we are engaging with mortgage lenders and brokers to help educate them on our products and their usage so they can be more accurately incorporated into any eligibility and affordability assessments,” the spokesperson said.
Growing concern in the future
BNPL services is likely to be a growing concern for mortgage brokers in the future as their use has increased during the pandemic and is expected to continue expanding in the future.
According to figures from the FCA earlier this year, the use of BNPL products nearly quadrupled in 2020 with five million additional people using these products since the beginning of the pandemic.
Research from BNPL travel firm Butter predicted the UK’s BNPL sector will be worth nearly £27bn by 2024.
The users of the platform are also expected to become more diverse, with a wider range of borrowers potentially having BNPL services on their banking statements.
Stephenson said: “Thinking back to payday loans – this is an area that has changed mortgage eligibility significantly in recent years. Taking out one of these loans wasn’t a problem for many lenders a few years ago but if you can take one out now it’s likely you will need specialist help.
“This is of course a very different case to BNPL options, but highlights how lenders can and will change their minds on the criteria used to judge affordability.”
Top 10 most read mortgage broker stories this week – 23/07/2021
The government’s decision to remove the need for an EWS1 form when lending on buildings shorter than 18 metres was also of interest, as it signified a move which could unlock the market.
Speculation that Foxtons was looking for a buyer for its broker firm Alexander Hall also drew readers in, as did one firm’s decision to refund fees to clients unhappy with their advice.
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TML adds cohort of deals to BTL range and reduces minimum loan size
The minimum loan value is now £25,001 across most of its BTL range.
Some 15 new products have been added to the lender’s offering at 80 per cent LTV with a mix of fee and rate combinations.
These include a two-year fixed rate mortgage with a rate of 4.35 per cent and a 1.5 per cent product fee. There is also a five-year fixed rate priced at 4.4 per cent with a 2 per cent fee.
The products are available to the whole of market for individual, limited company and LLP applicants for purchase and remortgage.
Steve Griffiths (pictured), sales and product director at The Mortgage Lender, said: “This is one of a number of enhancements we’ve made to our BTL range in recent weeks as we evolve to meet market demand and demonstrate our commitment to real life lending.
“We’ve made these changes with portfolio landlords very much in mind as smaller deposits enable them to grow more quickly by allowing them to distribute their funds across more properties.”
Platform makes rate cuts across high LTVs and product switches
Reductions include to select two-year fixed rates between 80 to 90 per cent LTV, which also come with a £999 fee. These have been cut by up to 0.36 per cent.
The deal at 80 per cent LTV is priced at 1.49 per cent and the 85 per cent LTV product has a rate of 1.82 per cent. The lender’s 90 per cent LTV option has a rate of 2.29 per cent.
Equivalent products fixed for a five-year term have had rate reductions of up to 0.42 per cent.
Five-year fixed rate products at 80 to 90 per cent LTV with a £1,499 fee have seen cuts of up to 0.43 per cent.
Rates now vary between 1.64 per cent at 80 per cent LTV and 2.79 per cent at 90 per cent LTV.
These products are available for both purchase and remortgage.
Across its product switches range Platform has reduced the rates on mainstream residential products between 80 to 90 per cent LTV.
Two-year fixed rate with a £749 fee have been reduced by up to 0.36 per cent, while five-year fixed rate alternatives have been cut by up to 0.42 per cent.
The lender’s five-year fixed rate product switch option at 80 to 90 per cent LTV with a £1,249 fee have been reduced by up to 0.43 per cent.
Secure Trust Bank exits resi market with £54.6m loan book sale
The portfolio will be acquired for £54.6m by financing vehicle Jacqali Designated Activity Company.
The purchase price took account of the net book value of £77.7m as of 31 December 2020. The portfolio contributed £1.95m, including allocated costs, to profit before tax in 2020 on an unaudited basis.
The buyer was “a financing vehicle established by a global financial institution,” with the “purchaser’s obligation to pay backed by the institution,” STB’s statement said.
The sale was in line with a strategy to focus on specialist lending segments offering higher yields, and capital released will be invested into the business.
STB said in January 2019 that it would withdraw from residential lending, citing competition and pressure on the housing market, and stopped taking new mortgage applications a month later.
It has continued lending in the commercial, development and real estate finance spaces.
David McCreadie (pictured), chief executive at STB, said: “The disposal is in line with STB’s strategy of maximising value, simplifying the group and focusing on the areas of the business that have the strongest prospects for delivering sustainable and profitable medium to long-term growth.
“The proceeds will be used to strengthen STB’s capital position, provide additional financial flexibility to deliver its growth strategy, and ultimately enhance returns for shareholders.”
The sale is subject to agreement.
OpenMoney launches free online advice service for first-time buyers
The service will initially be targeted to employed first-time buyers in England and Wales.
The platform has access to 50 lenders, as well as suggestions on solicitors, insurance, wills and surveys. It can also offer tailored advice and access to human advisers by phone.
Research by the advice firm showed nearly half of first-time buyers are not confident in the house buying process, including choosing solicitors, mortgage deals and insurers.
OpenMoney head of home, Karina Hutchins, said: “Buying a house is a huge financial commitment, but the process can be confusing, involving multiple parties and so much jargon that it feels overwhelming, especially for first-time buyers.
“Our new service aims to simplify the process and guide customers through the whole home buying journey to ensure they understand the impact different mortgages will have on their finances and which products they need and where to find them.”
OpenMoney co-founder, Anthony Morrow, added “Buying a property is expensive and we fundamentally disagree with mortgage providers that charge people for advice.
“Applying for a mortgage used to be difficult, but now we offer customers an online account which includes advice, recommendations, and document upload to make the process easier.”
Pepper plans new proposition after completing largest securitisation yet
The £425m securitisation deal comprised first charge mortgages and was the third to be issued under the lender’s Polaris banner.
Laurence Morey, chief executive at Pepper Money (pictured), said it received “very strong support from a wide range of investors.”
“We’re now in an exciting position to plan further growth of lending,” Morey added.
“We aim to take our robust and inclusive approach to lending to new propositions, including affordable home ownership, over the coming weeks and months.
“We have already launched products to help a wider range of customers, such as our cashback offering for those wanting to consolidate debts,” Morey said.
“The strong investor appetite for this securitisation is testament to the high quality assets that we generate, thanks to our exceptional team, which throughout the pandemic remained focused on delivering for customers,” he added.
The Polaris deals are separate from Pepper’s series of three Castell securitisations, which have been completed on second charge mortgages.
NatWest sells Ulster Bank mortgage book in ongoing withdrawal from Ireland
The deal includes €7.6bn of loans, the majority being non-tracker mortgages, as well as micro SME loans, an asset finance business and 25 out of 88 Ulster Bank branches. About 500 to 600 staff are expected to transfer according to the agreement.
“There is no immediate change for Ulster Bank customers”, the group statement said.
In return, NatWest will receive cash and a 20 per cent stake in PTSB.
Alison Rose, NatWest Group chief executive, (pictured) said: “In line with our strategy of a phased withdrawal from the Republic of Ireland, this is a significant update in the form of a non-binding memorandum of understanding with PTSB.
“It builds on the recently announced sale of the majority of Ulster Bank’s commercial banking business to Allied Irish Bank,” Rose added.
Newcastle Building Society launches First Homes mortgages
The products are amongst the first under the initiative which was launched last month. It offers first-time buyers a discount of at least 30 per cent on a new-build property’s market value.
Prices for properties must not exceed than £250,000 outside of London, or £420,000 in Greater London.
The mutual’s two-year fixed rate is available at 2.89 per cent while the five-year fixed rate is available at 2.99 per cent.
Stuart Miller, chief customer officer at Newcastle Building Society, said: “We’re pleased to launch our First Homes products, which will give brokers and their clients a competitive option on the pilot developments.
“By participating in First Homes, we’re delivering on our commitment to support first-time buyers, especially those without access to the bank of mum and dad. It’s one of several innovative initiatives we’re involved in to help low-deposit borrowers get on and up the property ladder.”