The future of the schemes in Scotland and Wales are also in the balance.
As a result, shared ownership is being touted as a potential replacement to Help to Buy in supporting first-time buyers.
So this week Mortgage Solutions is asking if lenders should be doing more to support shared ownership as a replacement for Help to Buy?
Should lenders be doing more to support shared ownership as a replacement for Help to Buy?
The ability to quickly and easily obtain an accurate picture of how much a potential client could borrow could help you to generate, and convert, more leads. Here’s how.
Whatever method you use to generate leads, there is probably a significant proportion that don’t convert to completed business, which equates to wasted money and effort on your part. So, improving this conversion rate not only results in more business but also a more efficient way of working.
One way of improving conversion rates is by demonstrating to potential clients how much value you can add, as early as possible in the process. This can help to win over those people who are undecided about which broker to choose, whether to go direct to a lender or even whether it is worth them pursuing their chances of getting a mortgage.
For many borrowers, the biggest question they have when it comes to applying for a mortgage is how much they are able to borrow – it’s often a more important consideration than rate.
So, to help improve your conversion rates, give your leads an accurate idea of how much they might be able to borrow, not simply a five-times multiple. There is a wide range in what lenders are prepared to lend and by demonstrating this, you can educate potential clients and reinforce the idea that using a broker is essential in finding the right mortgage.
Most data capture forms for mortgage lead generation will include fields for income and possibly even outgoings, and this information can help you to provide a good understanding of a prospect’s affordability.
Forget about using income multiples for this, it’s too rough an estimate, doesn’t properly account for lenders’ true affordability models and doesn’t demonstrate any added value to your potential client.
Instead, the smart approach would be to use an affordability platform, like MBT Affordability, to utilise the details submitted by your potential client and get accurate affordability results from a wide range of lenders. This will enable you to respond to the enquiry with more accurate solutions, based on the information provided to you, on how much and what type of mortgages would be available to them.
By following up on leads in this way, you can demonstrate your ability to research mortgages based on their individual circumstances and this will help you to convert more business.
Affordability is such a key issue that affordability tools are now being used across the industry, including by lenders to help inform and target their product development. So, think about how you can use tools like these to give your business an advantage, not just in researching solutions for your clients, but also generating new leads and improving your conversions.
The number of longer loans and the proportion of the market they comprise has grown significantly over the last five years. This approach has become more widespread because it supports borrowers to meet increasingly tough affordability requirements.
Moneyfacts counted 2,744 deals with 40-year terms available at the moment, up from 2,604 in March and from 1,217 in June 2014.
The market share of 40-year terms has increased from 51 per cent three months ago and 42 per cent in June 2015.
Moneyfacts noted that the standard mortgage term was 25 years in the past, but said most products were now available over 40 years.
Additionally, it highlighted a reduction in the number of products available up to a maximum term of 35 years, suggesting a shift toward products with the additional five years.
Spokesman Darren Cook noted that by extending the mortgage term, borrowers can reduce their monthly repayments and therefore are more likely to meet strict affordability requirements.
“A longer mortgage term may reduce the monthly repayments of a mortgage, however, the additional interest that accumulates over an extended mortgage term could be considerable,” he said.
“For example, a £200,000 repayment mortgage at a rate of 2.50 per cent over 25 years equates to a monthly repayment of £897.23 and total interest payable would be £69,169 over the term.
“However, the same mortgage taken over a 40-year term would reduce the monthly repayments to £659.56 but increase the total interest to be paid to £116,588, resulting in an additional £47,419 in interest.”
The four schemes include 278 homes in Croydon, Cornwall, Dunstable and Shrivenham.
The first of these homes to be completed are in Leon House in Croydon and will be available this month, comprising 50 shared ownership apartments.
Legal and General has also secured a pipeline of over 40 sites across the UK, providing 1,500 affordable homes in the next 24 months.
It expects to deliver 3,000 affordable homes annually within the next four years.
Legal & General’s second acquisition in Cornwall represents a joint venture with Coastline Housing Limited. With Legal & General’s financial backing, this will support Coastline in its ambition to double its affordable housing completions to 600 per year.
The partnership’s first scheme in Falmouth will comprise 44 affordable homes across two building phases, available from June 2019.
Legal & General Affordable Homes’ other two schemes in Dunstable and Shrivenham are being delivered under Section 106 agreements. Phoenix Park in Dunstable will be available to buyers from Q4 2019, comprising 23 shared ownership apartments.
Its scheme in Shrivenham has been acquired from Legal & General’s own house building arm, Legal & General Homes. This will deliver 109 homes at affordable rents and 52 shared ownership units. Homes will be available during the first half of 2020.
Ben Denton, managing director of Legal & General Affordable Homes, said there was an urgent need to accelerate the delivery of new affordable homes.
He added: “We have made a great start in executing our development programme, alongside building our customer service platforms. Today marks the real start of our journey as we deliver our first affordable homes, working alongside high quality local providers to tackle the growing crisis.
“As demonstrated by the scope and range of our acquisitions today and the significant pipeline we have secured, we remain committed to offering a choice of tenures to our future residents; deploying institutional capital at scale and pioneering new partnership models, such as the one we have set up with Coastline.
“This range of routes to market will help us meet our ambition to become a leading affordable housing provider in the UK and delivering the volume of affordable homes which the country desperately needs.”
Nathan Mallows, director of finance of Coastline Housing, said: “This new joint venture partnership with Legal & General is the culmination of over a year of collaborative working; shaping an alliance that seeks to solve Cornwall’s housing need through long term, institutional investment, coupled with local knowledge and management expertise.
“Providing excellent customer service and increasing the provision of affordable housing is a mutual ambition.”
Mortgage Solutions’ latest poll asked brokers whether they offer applicants inside tips on how to increase affordability and their appeal to mortgage lenders.
Around 50 per cent of brokers replied positively, whilst 22 per cent negatively.
Around 28 per cent of brokers said they have sometimes helped first-time buyers stretch affordability.
Robert Winfield, managing director at Chartwell Funding Limited, said that whilst they are happy to provide little tips to clients to help achieve their objectives, they would never push boundaries and leave clients with too big a mortgage.
He added: “One old tip we recommend is effecting and servicing a credit card to boost your credit scoring as this can go a long way in maximising borrowing for a client. We always ask clients who receive variable pay if it is a bonus or commission as lenders treat these differently.
“In certain circumstances it can be better to have commission on pay slips and asking clients to check with their employers if they can change the description on pay slips can help. We also advise clients that lenders use different affordability algorithms based on salaries and for someone on say £24,800, if they could negotiate a pay rise with their employer to £25,000, this can make a big difference.
“It is a dilemma when helping clients to maximise their borrowing as to how much we coach them, however I still remember the good old days of self-certification and my borrowing book outperformed the underwritten book no end when it came to missed payments and repossessions. So should we stop pushing boundaries on affordability calculators and merely bring back SC for the right calibre of clients?”
Lisa Bird, chief operating officer at The UK Adviser, said the company is not tied to a single provider and can therefore search the market for the best deals and products, which changes rapidly in the first-time buyers’ market.
Bird said that her network of advisers are able to share tips with each other and their clients following successful first-time mortgage approvals.
She added: “Staying abreast of the changes and the best offers at that particular time can save buyers a significant amount of time and money.
“Affordability is based on a client’s monthly expenditure together with any outstanding financial commitments. Therefore our advisers’ asses a client’s financial circumstances in order to give the best advice possible and improve their chance of obtaining the mortgage.
“Our advisers also help clients view their credit reports and give them a better understanding of the lenders available, based on their credit file. Every client is individually assessed before their application is submitted to the lender – this means quicker mortgage completions and, most importantly, happy customers.”
Dominic Lipnicki, director of Your Mortgage Decisions, said that for most, the purchase of their first home is a huge financial undertaking, which is why proper planning is key.
He said: “Good advisers should carry out a detailed fact find, ensuring that they don’t fall into the trap of being order takers. We all know what a difference a few per cent in LTV calculations can make to affordability and monthly payments hence all avenues should be explored.
“In many ways, first-time buyers are a vulnerable group of clients as they often have little knowledge of the mortgage market and require more help. Many may not be aware of niche products such as guarantor mortgages and offset which is why it is imperative that first time buyers are armed with all of the relevant information so that they can make informed decisions.
He added that good advisers will explain how lenders see affordability in respect to other outgoings, as well as the importance of looking after their credit file, being on the electoral roll, reduce their direct debits and fresh credit searches to a minimum.
“Client acquisition is key in our industry and spending some time advising clients who may not be placeable now but with sound advice, could be a client for life in the future,” he concluded.
Borrowers aged 36-40 and above typically put down a deposit of at least 25 per cent, called a ‘tipping point’ for access to lower mortgage rates, according to the latest figures released by Royal London.
Our poll this week asks how brokers help borrowers stretch to gain access to cheaper rates and the home of their dream.
VOTE NOW BELOW!
Do you offer applicants inside tips on how to increase affordability and their appeal to mortgage lenders?
In its latest inflation report, the bank suggested that there were likely to be an average of around 60,000 approvals for purchase deals each month between the second and fourth quarters of the year.
This is down from the 65,000 monthly average it expected back in February.
In addition, the bank has sounded a more negative note on its expectations for house price growth. Back in February it expected house prices to increase by around a quarter of a per cent per quarter on average.
Now it has suggested that house prices are likely to fall by 1.25 per cent in the year to Q4.
The bank has also stood by its prediction of housing investment to fall by 0.5 per cent per quarter on average.
It released the report alongside the announcement that it was keeping the base rate on hold at 0.75 per cent.
The Bank of England’s report suggested that the slowdown in house price inflation is largely down to issues such as Brexit hitting demand for property.
It cited the latest survey from the Royal Institution of Chartered Surveyors, in which 80 per cent of respondents noted it was one of the two biggest challenges currently facing the market.
The report said: “Given the relatively large costs associated with buying and selling houses, some households are likely to have delayed buying or moving house.”
The inflation report also pointed to “affordability constraints”, noting that the slowing house price inflation was most pronounced in areas where prices before the referendum were highest in comparison to incomes, such as London and the South East.
Improved supply may have played a part too. It said: “House building held up following the referendum, and in the year to April 2018, 222,000 dwellings were added to the housing stock in England, only just below the series high of 224,000 in 2008.
“Contacts of the bank’s agents have reported that in some regions, such as southern England, an excess supply of housing has led to a widening gap between asking and offered prices.”
Despite revising down its forecasts, the bank said it expects both house price inflation and housing investment to pick up in the longer term.
It said this is likely once “headwinds from uncertainty dissipate and stronger income growth supports the demand for housing”.
The JBSP mortgage is suitable for first-time buyers as borrower owners with lower salaries. Using their parents who are willing to become a borrower but non-owner of the property will make the mortgage more affordable.
Head of lending at Marsden BS, Steve Robinson (pictured), said that there is a growing appetite for customers wanting to get onto the property ladder, but it can be difficult for first-time buyers to be able to afford the mortgage repayments.
He added: “We have launched our JBSP range with supporting toolkits including criteria and product portfolios so that brokers have access to everything they need, as well as a guide that answers any questions about our JBSP mortgage range.”
In 2018, Marsden BS saw an increase in gross mortgage lending from £116m to £122.8m and said it will maintain its strategy of investment, including further innovation in technology with the launch of an online platform for intermediaries supporting loan applications.
It raised concerns that the business models of some retail lending products, including some subprime credit and second charge mortgage products, “are designed to benefit from consumers not repaying their debts”.
“For example, firms may make profits from consumers who do not or cannot repay in full and on time,” the regulator continued.
“We will carry out work to identify these business models and the consequences for consumers and use our findings to identify what action we may need to take.”
The regulator announced its concerns about the sector in its business plan published today, and the action will continue an intervention in the second charge sector over the last two years.
Early last year the FCA sent a Dear CEO letter to all second charge providers calling on them to address poor lending practices.
This followed a meeting in which it summoned lenders to its office for a workshop on lending practices.
As part of the review process, Shawbrook pulled products and admitted it was overhauling its lending approach.
The FCA will carry out diagnostic work to understand whether there are business models in the retail lending sectors that rely on consumers who cannot afford to repay.
“We want to understand whether the causes and consequences of these business models exploit consumer biases and cause harm,” it said.
“This work will include consumer research to understand the consumer behaviours that drive demand-side pressures,” it added.
It expects to complete this work in 2020/21.
In a section outlining the outcome indicators it uses to assess potential consumer harm, the FCA highlighted its Mortgage Lending and Administration Report monitoring consumers in arrears.
Product sales data also shows how many consumers are on the lenders’ Standard Variable Rate, indicating they could potentially choose a different product and pay less.
“We will also review the number of complaints to firms and notifications from firms about second charge lenders to monitor how they are treating these consumers,” the FCA continued.
“Firms’ poor lending decisions and consumers’ poor borrowing decisions can lead to consumers suffering financial distress and affecting other parts of their lives.”
The regulator added that it requires firms to undertake robust affordability assessments before they make a lending decision, but it acknowledged that consumers can get into financial difficulty because of factors neither they nor the firms could have reasonably foreseen.
“This makes it difficult to rely on arrears data to show whether a product was unaffordable from the outset,” it said.
“Such data can, however, provide an initial indication that we can then test by assessing a firm’s policies and procedures and lending decisions.
“Through our Financial Lives Survey, we will continue to measure levels of over-indebtedness,” it added.