TSLE: Mortgage market in ‘strong position’ for 2022

Speaking in a fireside chat at The Specialist Lending Event in Solihull yesterday, Emily Hollands (pictured), head of specialist finance at Precise Mortgages and InterBay Commercial, said that from a lender perspective 2021 was a “recovery year” as there was uncertainty as to how Covid-19 would play out and impact the economy.

She said: “2021 was very much about taking a step back and trying to understand what the economic outlook was going to be for the year, keeping an eye on things and waiting for the point where it actually looked like it turned positive.”

Hollands continued that reports in November and December from UK Finance painted quite a “positive outlook”, which she said meant going in to 2022 it has allowed them to relax criteria and reopen its lending lines.

“I think we will go into 2022 in a much stronger position than we were last year. We’ve had Omicron but that wasn’t as bad as what we thought so now, we’re in a really nice position,” she said.

Stephanie Charman, head of strategic relations at Sesame Bankhall Group, agreed that there was a “lot to be very optimistic about in 2022”.

She explained that the stamp duty holiday had “turbocharged” the property market last year and UK Finance figures showed mortgage lending for 2021 had come to £316bn, which is an increase of 27 per cent.

She added that going into the start of the year, there had been a nine per cent increase in buyer demand according to Zoopla, which showed there was “continuing demand”.

Bank of England affordability test and changing consumer spending

Hollands said: “There is a push on the consumers at the moment, but it is worth mentioning that spending habits have changed since lockdown. Energy prices are increasing and that is putting pressure on the consumer but spending habits haven’t returned to normal.

“I think 80 per cent of households saved money in lockdown and billions of pounds worth of unsecured debt was paid off so people are actually in a stronger position. I am not saying they should have to deal with higher energy prices, but it’s more likely that they can deal with it.”

Regarding the Bank of England’s consultation on its affordability test recommendation, Hollands said there was “no telling which way it would go”.

She said: “I think it’s timely because the rates are not the same as what they were when this fell into place. It is probably the right time to re-evaluate but just because they say doesn’t mean lenders will follow.

“It’s all about lenders calculating their own risk and what they are prepared to take and actually, interestingly, they decided not to look at income multiples which in my mind might have been a different, potentially better, way to go because then it gives you gives you that level of freedom.”

She cited an example where if a borrower had low outgoings then they may benefit from a bigger income multiple.

Opportunities in the market

From a BTL perspective, Hollands said that potentially some smaller landlords with one or two properties held in their personal name might sell up, but overall the BTL market was still really strong with tenant demand also buoyant.

She added: “What we might see is landlords starting to diversify their portfolio, so looking at commercial property, houses in multiple occupation (HMOs) and things like that, but again, it isn’t anything new and that’s what’s been happening since 2016 when tax changes came in.”

Charman added that with billions of pounds in product maturities coming up this year and many of them first-time buyers who have “never gone through this cycle”, it was a “real opportunity” for brokers to have a conversation with their customers about a range of options.

She said: “I think back to the value of the advice that you offer; it needs to be wider than just about a product transfer it should be around protection…and what are their longer term plans.”

Charman said she did not think Help to Buy would be extended and said even though it was ending in March 2023, as developers had forward sold to such an extent eligible Help to Buy properties would be gone by May or June this year.

She said there was a “real gap” in the market for a solution, and added that of the three challenges around deposit, affordability and housing stock the solutions coming through now only “solved one or two of those at best”.

Charman said, for instance, the difference between a 95 per cent lending product and Help to Buy payment was about £300, which was quite a “big difference and a little bit expensive”.

“I think we’ve got schemes coming through and we will hopefully see the re-emergence of shared ownership. We’ve seen partial home ownership schemes come into the fore and private share equity, but none of those are going to fill the gap.”

She said in total, Help to Buy had been used to purchase 349,000 properties totalling £94bn, and 83 per cent of purchasers were first-time buyers.

Legislation around BTL EPCs has to be careful of ‘unintended consequences’

Both Charman and Hollands agreed that proposed regulation around required energy performance certificate required for buy-to-let properties, which could require properties to have a minimum rating of C, would have a massive impact on the market but said there was still a huge amount of uncertainty.

Charman explained that the consultation had only finished on 8 January and has now been summoned to receive final legislation, but she did think some of the dates would be pushed out slightly.

She added that 60 per cent of BTL properties had a rating of D or under, and said improvements could be very costly, so it was vital for brokers to talk to landlords on how they could raise that money.

Hollands said whatever comes of the legislation it has to be “absolutely clear on what the standards are” and whether there are opportunities for grants that could help landlords.

She added it could be a “real opportunity” for specialist lenders, such as bridging, second charge and other specialist lending providers to help landlords fill the gap.

However, she warned there would be properties that could not be improved and said there needed to be clear guidance on what happens to those properties.

Charman agreed and said: “I think what we need to be very careful that lenders don’t just take the easy solution of only accepting C rated properties or above. We shouldn’t create a two-tier markets and lenders are very conscious of that, so I think any legislation you have to careful there aren’t, unintended consequences.”