Although it’s been happening for years now, we’re recently seeing firmer moves on the high street which result in a much more polarised market than we’re used to.
I’m referring to policies and criteria which will make it much more difficult for those in the mainstream market, for those clients in the sub-£250k space, to get the mortgage they need.
Our firm places many clients with private banks, and I can say that the private banks are still becoming more and more choosy about whom they take on, requiring more assets under management and bringing in higher minimum loan sizes, some as high as £5,000,000.
There is a large segment of the market sitting in between these two extremes. Nationwide Building Society, whose average loan size is under £200,000, has decided to take interest-only to the extreme and ban it altogether. That was announced before the MMR guidelines were announced so it will be interesting to see if they backtrack on that decision.
The other big announcement recently has been Lloyds Banking Group pulling out of lending to expats altogether. By and large, the only ones left who might consider lending to expats are private banks.
As I said above, their entry levels keep rising, so those expat Brits around the world who want to get UK mortgages are really being pushed out. All but the wealthiest will find it very difficult to get a mortgage here.
So, if this trend continues, where the high street continues to pull out of everything but the most basic “vanilla” types of clients, and if private banks keep increasing their minimum loan and investment requirements to even open an account, there will be a growing “squeezed middle” who will find that the mortgage drought lasts forever.
There will be a lot of room for forward-thinking lenders to fill the gap here. Rates and fees could be slightly higher to account for the manual underwriting required.
We have a few high street lenders such as the Clydesdale who adopt a more common-sense approach, and we’re talking to some of the better capitalised private banks about developing a more mid-level offering which we hope will help too, but until then, this squeeze on the middle looks set to continue.
