Around 67 per cent of brokers said they wanted lenders to remove pandemic-based criteria as soon as possible, according to the latest Mortgage Solutions poll.
During the pandemic lenders brought in a range of measures to ensure that they lent responsibly, such as requiring larger savings in reserve, removing higher LTV products or not lending to those on government support.
And while brokers said that some lenders were already rolling back some pandemic-based criteria, full removal may be some way off.
Coreco’s managing director Andrew Montlake said: “There will obviously be a lingering on where furlough is concerned particularly for some businesses in certain higher risk areas like travel and entertainment, which is to be expected. Lenders still have to go through their due diligence, but this should be more on a case-by-case basis rather than a catch-all policy.”
Miles Robinson, Trussle’s head of mortgages, added that many lenders were simplifying their requirements with the majority now requesting applicants show three months’ statements to show their finances and income were stable.
He added that some lenders had introduced cut-off points to Covid-19 support schemes. For example, they wouldn’t lend to those who took government support out in the last three months but those who took them out a year ago could be eligible. He said this was “proving helpful to many”.
However, Robinson said that despite the economy improving and the lifting of most Covid-19 restrictions lenders were still being cautious.
He said: “It is understandable that many lenders are reluctant to remove all pandemic-based criteria from mortgage applications. Whilst many restrictions have now been lifted, it is important to note that we are not yet clear of the uncertainty of Covid-19 which could then resonate back in the property market.”
Mortgage Advice Bureau’s head of lending Brian Murphy said it was not surprising that most advisers wanted criteria changes to be “reversed and normalised” imminently, but lenders needed to see the full impact of government schemes first.
He said: “To date the impact the pandemic has wreaked on the economy, particularly in terms of unemployment, has not been as severe as most were forecasting. Once the last of the government support measures have ended, there will no doubt need to be a period of reflection while lenders assess the consequences before normalising criteria to pre-pandemic levels.”
According to Knowledge Bank’s operations director Matthew Corker, searches for Covid-19 related criteria on its criteria platform are down 90 per cent in virtually all lending.
Corker said: “While the numbers have dropped dramatically, there are a few searches for pandemic criteria. Although lockdown restrictions have ended some are still on furlough, and we are not fully out of the woods yet, so lenders are rightly being cautious about removing pandemic criteria.”
He added that it is likely that there would be further changes to criteria as the furlough scheme ends, and the economy continues to improve.
Nicholas Morrey, John Charcol’s product technical manager, said that the challenge for lenders centred around affordability and how that fits with the ethos of responsible lending.
He said: “If someone applying for a mortgage is on the same income as they were before the pandemic but has taken on financial commitments they did not have before, like government loans, then lenders will struggle to lend them the same amount they did previously, let alone more.
“But should that be put down as a pandemic-related cost and ignored? Of course not. If someone has been furloughed but is going back to work in the same role, and for the same money as before the pandemic should they have their borrowing capacity curtailed? Absolutely not.”
Lenders and self-employed borrowers
Brokers said that a significant issue would be around how lenders approach self-employed borrowers.
During the pandemic some lenders became more selective around self-employed lending, not lending to those who took out government support or lending to certain sectors.
Morrey explained that in the fourth quarter the most recent accounts were not up-to-date enough to form an accurate picture of income and affordability.
He added that if lenders used the most recent year, 2020 to 2021, as part of their affordability calculations then it would possibly impact applications for around three years. This means that applications made in 2022 could be impacted by government support taken in 2020.
Morrey said that Santander’s move to ignore this tax year’s figures, opting to use the year prior, was “forward thinking”. But he added that there could be a drop in self-employed applications in the future.
“I expect others to release their intentions in this area over the next month or they will likely see a sudden drop off in self-employed mortgage applicants whose situations are back to normal or even better,” he said.
Montlake added: “Not all businesses are in trouble just because they have taken advantage of government support measures. Lumping all the self-employed into the same boat, even companies who have prospered during these times, is hard to explain to those who feel they are in a good position to buy a property.”