In recent times first-time buyers have become all too familiar with a variety of obstacles being placed in their way which they have had to battle to overcome.
Rising house prices, lending restrictions, funding issues, problems raising sufficient deposits and general affordability levels have all cast some degree of shadow over this sector thanks to economic issues and latterly some regulatory implications.
Now there are now also some concerns over how loan-to-income (LTI) caps could impact first-time buyer borrowing especially after recent announcements from a number of lenders regarding their stance on this particular issue.
It’s certainly not for me to comment on other lenders’ procedures and I have no doubt each lender is doing what it believes to be right for its individual business. There is a continued commitment throughout the industry to responsible lending and it’s clear each and every lending institution should be continually monitoring their LTI and affordability limits in the context of the mortgage market and prevailing economic environment.
At Barclays we already use LTI limits to set an absolute limit to the maximum borrowing available, which vary according to factors such as LTV and income levels. However, affordability remains the most important factor in assessing and approving a mortgage, which includes the use of a stress rate to reflect the forward view of interest rates over a five year horizon.
Inevitably each lender will have its own views and methodology regarding how these caps are implemented over the short, medium and longer-terms. Again, to reiterate it’s not for me to judge, let’s just hope any changes are made for the right reasons to ensure all loans are affordable but not at the expense of credit-worthy borrowers.
Of course the background behind this LTI cap talk stems from the announcement that from October the Bank of England will state that loans above 4.5 times income must make up no more than 15% of a lender’s new lending.
The reaction to these recent shifts from the intermediary market has made for some interesting reading and offer enlightening insight from both them and their clients’ perspectives. It’s clear this is an area which will continue to generate much discussion and how it might affect certain sectors within the mortgage market, including first-time buyers, remains to be seen.
Thankfully the first-time buyer marketplace is one which, after a rocky period, has built itself back up to being a competitive and robust arena. Indeed, recent lending figures from the Council of Mortgage Lenders (CML) for May suggested that first-time buyer numbers were at a six-year high. These figures represented a highly positive reflection on this sector, especially as they offered the first view of the effects felt by the MMR on lending trends.
First-time buyer affordability changed fractionally, with first-time buyers typically borrowing 3.43 times their gross income, compared to 3.42 in April. The typical loan size for first-time buyers was £123,200 in May, up from £121,500 in April. The typical gross income of a first-time buyer household remained unchanged at £37,000 compared to April.
This strong performance certainly went some way to illustrating a lack of noticeable disruptions as a result of regulatory change.
This performance is also backed up by recent data from LSL Property Services which showed that first-time buyer numbers rose 27% in the first half of 2014. So despite continued challenges this remains a sector which is more than holding its own.
The Help to Buy initiative, rising employment levels and slow but steady growth in higher LTV lending have all helped play a part in this and let’s hope such growth and confidence continues to overshadow any potential LTI influence in the coming months.
