Speaking on a panel at the Building Societies Association (BSA) chair at the trade body’s annual conference, Ben Merritt, director of mortgages at Yorkshire Building Society, said it “absolutely welcomed” the affordability stress testing guidance, with several lenders already making changes to their stress tests.
The LTI flow limit, introduced in 2014 as part of the Mortgage Market Review, ensures mortgage lenders limit the number of new residential mortgage loans made with an LTI ratio at, or greater than, four-and-a-half to no more than 15% of their total number of new mortgage loans per year.
“I think the challenge that we [have] still got is that loan-to-income (LTI) constraint, particularly for the building society sector; the proportion of business that we’re providing to first-time buyers mean that we’re more susceptible to that LTI limit.
“That’s a conversation that we’re having with the Financial Policy Committee (FPC), I think the challenge that they’ve got is when they look at that 15% limit itself, [it] is not being consumed by the market, but it’s constraining more within the building society sector than it is within the banking sector,” he said.
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Commonhold requires good communication and education
Emily Wilson, head of homeownership strategy at the Ministry of Housing, Communities & Local Government, said commonhold was a “really big, challenging set of changes”.
The government announced earlier this year that it planned to make commonhold the “default tenure”.
“I think, given the problems [with] the leasehold system, I think [it] is absolutely the right thing to do. It does obviously present some kind of complications for the likes of shared ownership and that will take time to work through.
“I think I would definitely encourage everybody here to feed into the government consultations on this. It’s going to take time for us to work out the best way of ensuring that people in shared ownership are able to get the same benefits of commonhold as other homeowners,” she said.
Sarah Brown, head of mortgage propositions at Coventry Building Society, said one of the “challenges” in the move to commonhold is the commonhold associations, to “make sure that they’re financially resilient enough and issues will be resolved, and that doesn’t then impact the long term”.
“Regulation is going to be really important around that, and market adoption is going to be the other thing to move the dial,” she added.
Paul Broadhead, head of mortgage and housing policy at the BSA, said commonhold was a “huge change to the way that we’ve done things”.
“The communication and education around it is key, both from a consumer protection perspective and from a lending perspective, in terms of making sure that the security remains valid for… the lender. Also, to the conveyancer and estate agency community as well.
“I think my message to the government on that is, yes, it’s a beneficial reform, but check carefully and cautiously to make sure this works, because I think this change, you’ve got one chance to get it right, and the communication and the education of that is absolutely key,” he said.
