Last week Leeds Building Society announced that it would no longer lend to borrowers looking to purchase a second home, saying that these purchases would reduce the number of properties open to those looking to get onto the housing ladder at a time when there is already an acute housing shortage.
And intermediaries told Mortgage Solutions that while the move was likely well-intentioned, other lenders would have to follow suit in order for it to make a difference. There were also queries over whether the move was at odds with the lender’s continued presence in the buy-to-let and holiday let markets.
A mixed picture
Jane King, mortgage and equity release adviser at Ash-Ridge Private Finance, noted that Leeds has always been a “big supporter” of affordable housing, through providing shared ownership and Help to Buy products, and so this was “in line with their ethos” of trying to help first-time buyers.
However, she added: “They are still going to lend on buy to lets and they also lend on holiday lets so it’s a mixed picture overall.”
King suggested that Leeds’ status as a mutual meant they were better placed to take a stand like this, given they don’t have any shareholders to worry about.
“Maybe more mutuals will take a look at this and decide to do something similar – many of them already have niche markets such as ex-pats, foreign currency mortgages etc so maybe we will see more specialisation amongst the small lenders,” she continued.
Move away from the mania
Stepping away from second home lending is a “great move”, argued Martin Stewart, director at London Money, who emphasised that innovation “doesn’t always have to be rooted in technology”.
Stewart said that it was refreshing for a large lender to “acknowledge the elephant in the room”, which is that housing shortages are not just caused by missing building targets. He continued: “Many houses have been sucked unnecessarily out of the supply chain by people already well-established on the property ladder.”
He called on other lenders to follow Leeds, and pull the market back to the middle ground. He continued: “Allow it to grow organically, as it always did, until the multiple-house owning mania took over.”
Covid has made the issue worse
Samantha Bickford, mortgage and equity release at Clarity Wealth Management, said that one of the impacts of the pandemic had been wealthy buyers targeting property in seaside or rural towns, which had only resulted in pushing up prices and making it harder for locals who want to own a home in their hometown.
“Restricting second homes in certain hot spots will mean first-time buyers and movers have more opportunities to buy a home where they live and work, perhaps small Cornish beach towns could also benefit from this limit,” she continued.
How does pulling back from niches help?
Stuart Powell, managing director of Ocean Mortgages, said that Leeds had taken a “strange and unusual step”, questioning whether there was something else behind the move beyond wanting to address the housing shortage.
“After all, one lender will make very little difference to the property shortage situation. Is it a clever marketing ploy to get some publicity, or is the second home market unprofitable or too high risk to them as a lender?”
Powell questioned how the housing market as a whole will benefit from lenders retreating from certain niches.
He continued: “Perhaps a lender who will only sell small properties to first-time buyers and not to landlords so the entire market can be stimulated would be a good plan.”
Daniel Knott, mortgage and insurance adviser at Active Financial, said that Leeds taking a stance on the housing shortage would be “well received” by would-be first-time buyers who are struggling “in what remains an ultra-competitive market”, suggesting there would be prospective buyers hoping other lenders follow suit.
He continued: “However, this stance is currently a drop in the ocean of a much wider issue. Additionally, although I’m sure this move is well intended, we simply can’t predict exactly how changes such as this will impact the market on a longer-term basis. It’s difficult to identify where a line is drawn.”
