Homebuyers struggling with affordability restrictions – Knowledge Bank
The criteria sourcing system reported that ‘income multiple used for affordability assessment’ is within broker’s top five searches in October, impacting mortgage markets across the board.
And for the sixth consecutive month ‘Covid-19: Temporary maximum LTV restrictions’ has been within the top five, as the pandemic remains a key feature of mortgage affordability.
However, top search was ‘maximum age at end of term’, as borrowers perhaps try to stretch the term to keep their payments as low as possible.
The top spot in the bridging market was ‘maximum LTV’, and in the second charge market, ‘Maximum LTV/Loan to Value’ was similarly in first place.
Lenders’ tightened criteria is clearly still a significant issue for people with smaller deposits and it shows that LTV restrictions are impacting borrowers and their ability to buy or remortgage, Knowledge Bank said.
In the buy-to-let market, “first time landlord” is in first place. This could signify struggling homebuyers exploring alternative options to get a foot onto the property ladder.
The affordability assessment is based on the potential rental income, perhaps providing an easier route to ownership.
Searches for ‘Property with Annex /Outbuildings /Land /Acreage’ took the top spot in the equity release market once again.
This trend has undoubtedly been boosted by coronavirus impacting consumer habits, Knowledge Bank said, as fears over affordability are driving people to consider buying property with relatives.
Matthew Corker, lender relationship manager at Knowledge Bank, added: “The bottom line here is that people are desperately looking to get onto the property ladder.
“While there is much news about lenders returning to the market and introducing new products, we are already seeing signs that some products may be pulled in light of the second national lockdown as lender appetite for risk is reduced.
“The unknown impact of a second national lockdown on employment and the wider economy is causing panic in the housing market and this is putting buyers under an increasing amount of stress.”
Maximum LTV constraints tops broker criteria search – Knowledge Bank
Search terms reflecting the concerns of customers in a pandemic-hit market have featured highly in brokers’ criteria searches since lockdown began.
The second most popular search term in residential was ‘maximum age at end of term’, followed by ‘self-employed – 1 year’s accounts’, ‘help to buy equity loan scheme’ and at number five, ‘Covid-19: furloughed workers’.
Other regular broker searches in August asked about maximum loan-to-values (LTVs) and maximum loan sizes, across the second charge, equity release, self-build, bridging and commercial segments.
In buy-to-let, the number one search was ‘lending to limited companies’, followed by ‘first-time landlord.’ The number five search term in buy-to-let was ‘holiday lets’, perhaps reflecting the apparent opportunity in so-called staycation holidays during the pandemic.
In equity release, ‘debt management plan – ongoing/ current’ entered the top five, indicating that some borrowers may be looking to reduce monthly outgoings.
“There’s growing concern about mortgage eligibility among consumers across the board, particularly those looking for higher LTVs,” said Matthew Corker, lender relationship manager at Knowledge Bank.
“The looming end to the furlough scheme also continues to feature prominently as those on furlough attempt to get mortgages approved before their furlough ends,” he said.
Corker added that searches on maximum age at end of term could indicate that first-time buyers are relying more on family members to raise a deposit, with longer-term implications for equity release market.
Holiday let and overseas buyer demand growing
Knowledge Bank noted it had seen “a spike in searches for holiday lets” in the buy-to-let (BTL) market in July.
“This has undoubtedly been boosted by the introduction of the stamp duty holiday, and by coronavirus impacting consumer habits, making holiday homes increasingly desirable,” it said.
The trend has also been evidenced by the resurgence of lenders which has seen several re-entering the market during the last month.
However despite this growth, limited company lending remained top priority for brokers researching the BTL market – this was followed by first-time landlords and the requirement to be a homeowner.
For residential searches, Knowledge Bank found the criteria relating to the Covid-19 crisis including temporary maximum loan to value (LTV) and furloughed workers were causing interest.
Self-employed borrowers with one year’s accounts also remained a high priority for advisers.
Overseas investors soaring
Meanwhile, data from Legal & General Mortgage Club found growing interest in the UK property market from overseas buyers, including those with a visa and non-UK residents.
It noted that BTL searches for applicants on a visa have risen by 146 per cent since the confirmation of the stamp duty surcharge for overseas buyers, which will take effect in April 2021.
Criteria searches related to visas were the fourth most searched term by advisers during the first week of June and by 27 July ranked as the most searched term by advisers.
The club said the rise coincided with increased interest from Hong Kong-based buyers as a result of the growing political uncertainty in the territory, and also reflected the incoming stamp duty surcharge and temporary cut.
Dual stamp duty effect
Knowledge Bank lender relationship manager Matthew Corker said: “More people are looking into holiday lets as the desire to travel abroad is falling among UK citizens while Covid-19 continues to impact the travel sector.
“I expect this to become a trend in the coming months as travel bans are enforced and air travel remains limited. Let’s not forget the stamp duty holiday will further encourage consumers to take the plunge.
“Throughout June and July, we have seen indicators that the housing market is moving, and the stamp duty holiday is one of the sources that will provide the economy with the boost it needs.”
Legal & General Mortgage Club director Kevin Roberts added: “Britain’s housing market is bucking the trend and has faced unprecedented levels of demand since reopening in May, and now figures show that a growing number of overseas buyers are also taking interest in UK property.
“Many are now looking to take advantage of the stamp duty holiday while also investing in the market before the two per cent surcharge for overseas customers takes effect.
“There is an opportunity for advisers to support many of these buyers, particularly if they have little to no credit history in the UK,” he added.
Return of Help to Buy and BTL searches show market settling – Firth
For each of April, May and June, the top search in the residential category has been for ‘Covid-19: Temporary Maximum loan to value (LTV) Restrictions’.
This has been mirrored in the buy-to-let market, where searches focused on LTV restrictions have also been at the top of the list in two of the last three months.
This will come as no surprise to most. While demand for 90 per cent and 95 per cent deals has remained strong, we have all got used to seeing a seemingly endless stream of lenders having to limit the supply of, or withdraw altogether, their higher-LTV products.
The introduction of the government’s furlough scheme has also been an important factor in driving fluctuation in the market.
Lenders have taken different approaches to how to treat the income of furloughed workers for the purposes of affordability tests.
This has been reflected by broker searches: ‘Covid-19: Furloughed Workers’ has been the second most searched-for term in the residential market over the course of Q2.
With physical valuations prevented by the restrictions, some lenders embraced alternative valuation methods such as desktop valuations and automated valuation models (AVMs) – albeit generally only for lower LTV deals.
This too, showed up strongly in brokers’ searches.
But since the lockdown restrictions started to ease in May, the market seems to have started to recover well.
Viewings and valuations have started again, and lenders have started to come back into the market at the higher end of the LTV scale.
Returning to normal
In the residential market, ‘Help to Buy’ has risen back up the list of broker searches, indicating that first-time buyers are coming back into the market.
For buy-to-let, the searches that dominated the list in June – ‘Lending to Limited Companies’, ‘First-Time Landlord’ and ‘Requirement to be a Homeowner’ were broadly similar to those in January and February, in those halcyon, pre-lockdown days.
It is too early to say whether the temporary increases in the stamp duty and land tax thresholds will be sufficient to sustain these early signs of recovery.
There are, unfortunately, significant headwinds to contend with.
The furlough scheme is now starting to unwind and will come to an end in October.
This may prompt an increase in unemployment and in the meantime borrowers’ income may well come under greater scrutiny from lenders, seeking assurance that repayments are sustainable.
In spite of the huge package of support the government has put in place to stave off the worst economic impact, the country could still fall into a long and deep recession on the back of Covid-19. This will have a longer-term impact on employment and incomes, which could in turn result in a fall-off in activity in the property market.
One thing is clear already: the market post-lockdown is going to look very different from the one that preceded it.
The turmoil is set to continue for a good while yet – but the early signs are good that the market can bounce back from Covid-19. The next few months and years will certainly not be boring.
Brokers should be fully upfront about furloughed client information, lenders say
Speaking at Knowledge Bank’s Criteria Clinic webinar on Tuesday, Matt McCullough, national sales manager at Aldermore Bank said as brokers were on the frontline of cases, it was up to them to ensure a client’s application had sufficient information to be accepted.
“It’s all about the quality of the case that comes in from the broker.
“Because if we know that upfront, we don’t have to ask any questions and an underwriter is not assuming that someone’s in a potentially difficult place,” McCullough added.
Referring to a self-employed borrower who took on a second job as a stop gap while he stopped trading, McCullough said although the additional income was not used for affordability, the information helped to support the client’s overall financial strength.
He added: “The case wasn’t reliant on the additional income itself, but a lot of lenders would have said, ‘you’ve stopped trading so we can’t lend to you at all’.”
As the current situation with many borrowers is so fluid, lenders said an update on the client’s circumstances may be required before completion.
McCullough said the application would be based on how it was presented at the offer stage, but where the income has not been reviewed for 30 days Aldermore could ask for extra documentation in case the offer needs to be extended.
Peter Caldicott, key account manager at Principality Building Society, said if no change is confirmed, the application will proceed as normal but a letter stating a return to work would provide “comfort” to the lender.
Meanwhile, Janet Frame, business development manager for the north at The Nottingham Building Society said it would potentially ask for the borrower’s first payslip once they have returned to work to confirm conditions were the same.
Once furlough ends
Referring to data from the Office for Budget Responsibility which suggested 1.4 million furloughed workers may not return to work at all, Caldicott said an eye needed to be kept on this.
He said this was “unchartered territory” making it difficult for all lenders to predict how they would approach furloughed borrowers in October.
“There’s lots of positive signs alongside some negatives. It would be foolish of me to make any predictions as to where we’re going to be or what our appetite would be like.
“We will try to do the best for our members and brokers and be there, but lending sensibly to the right types of customers,” he added.
Jane Atkins, business development manager at Kensington Mortgages also said lenders would want to lend responsibly but added there was a risk of dropped transactions in the market as borrowers decide not to continue with applications if their job and finances remain uncertain.
Chairing the webinar, Nicola Firth, founder and director of Knowledge Bank, added: “One thing that should be on every broker’s fact find is a question around future income.
“So, asking each applicant if they anticipate any changes to future income because that might bring [any problems] out to the forefront as well.”
Rapid lender changes disproved talk of ‘market freeze’ – Knowledge Bank
Thanks to Covid-19 it’s not easy to see where the market will head next, assuming we can all resume something like normal duty in the next few months.
Back in February, the market was picking up nicely after a long period of uncertainty and 2020 was set fair.
Sure, there were still hundreds of lender criteria changing on a daily basis, then all of a sudden, boom.
We all knew the coronavirus was coming but it wasn’t until it became a full-blown reality that we appreciated the scale of the impact it would have.
There’s been plenty of talk about a ‘freeze’ in the market – but I’ve spent winters in Barnsley and let me tell you, this is not what a freeze looks like. The market has been in constant change.
Already by the end of March, ‘Covid-19 Mortgage Payment Holidays’ was Knowledge Bank’s most searched for criteria term in the residential section.
LTVs and valuations
By the time we got to the end of April, this had been supplanted at the top of both the residential and buy-to-let charts by ‘temporary maximum loan to value restrictions’ and ‘internal/automated valuation model/desktop valuations’.
In the residential market, these were joined by searches for ‘furloughed workers’ – a word that many of us had probably never heard before.
Are there any clues in this as to where the market might land as we start to emerge blinking back into the light?
It’s hard to imagine that everything will just pick up where we left off two very long months ago, but at the same time, there are encouraging signs that market activity is returning rapidly.
People have had enough of having their lives put on hold.
It’s time for some cautious optimism that the worst is over – and that the recovery we all hope for is just around the corner.
In the meantime, expect to see even more rapid change than usual. Optimism is important, but preparation is key.
Hampshire Trust Bank promotes BDM
Attridge will report to sales director Marcus Dussard (pictured).
Dussard said: “We always look internally to see if we have the talent able to fill any new role that comes up.
“Like each and every member of our team, Charlie will be instrumental in carrying out the exciting plans we have for the second half of the year to help support the market as it begins to move again.
“During my time at HTB, Charlie has shown himself to be a very capable individual ready for that next step in his career and he will be able to showcase his talents in the field as soon as it is safe to do so. In the meantime, he’ll be available via the normal channels.”
Knowledge Bank criteria
HTB has also added its criteria to the Knowledge Bank platform, joining over 200 lenders on the mortgage criteria search tool.
Dussard added: “We are delighted to be able to join Knowledge Bank to bring our specialist lending proposition to an even wider audience of professional brokers and intermediaries.”
Nicola Firth, CEO and founder of Knowledge Bank, said: “The team at HTB have really embraced Knowledge Bank and fully understand how we can not only get them in front of thousands of brokers immediately, but also how it fits into their overall distribution strategy.
“With traffic on our site increasing dramatically since the start of this pandemic, it’s a great time for HTB to come onboard and we look forward to working with them.”
Tenet Group partners with Knowledge Bank
Knowledge Bank holds more than 100,000 criteria from 200 lenders allowing brokers to search across residential, buy to let, equity release, self build, second charges, bridging, commercial and overseas mortgage markets.
Simon Broadley, managing director of TenetLime, said: “Knowledge Bank provides a valuable resource in the mortgage marketplace, especially with all the current criteria changes in relation to Covid-19.”
Nicola Firth, chief executive of Knowledge Bank (pictured), added: “Mortgage brokers need to stay up to date with a bewildering array of mortgage criteria that are changing daily. The coronavirus outbreak has made this problem even harder with over 4000 different criteria changes just since the lockdown.
“Tenet is one of the UK’s largest financial adviser groups. This partnership enables its growing army of members to keep track of the rapidly evolving marketplace and benefit from the comprehensive coverage only Knowledge Bank delivers.”
Covid-19 criteria dominates broker searches – Knowledge Bank
Across the residential, buy-to-let, second charge, and bridging markets, “Covid19: temporary maximum LTV restrictions” was the most frequent search.
In the residential category, the top three searches in April were all linked to the pandemic.
In addition to LTV restrictions, brokers also searched in large numbers for “internal / AVM / Desktop Valuations” which also came in at number two in the buy-to-let category, and “Covid-19: furloughed workers”.
In the equity release category “minimum age at application” topped the list of broker searches whereas in February it had been “maximum age” that had attracted most searches.
Knowledge Bank suggests this could indicate that working-age people wish to access some of the value they have tied up in their property to top up their day-to-day finances.
Searches for “add fees to loan” was another new entrant at number three on the list, which may signal that people are looking to maximise the upfront cash they can extract said the firm.
Matthew Corker, Knowledge Bank’s lender relationship manager, said: “With lenders across the board cutting back sharply on loan-to-value, and in some cases temporarily withdrawing from the market, brokers are working harder than ever to keep track of an ever-changing landscape and get the best deals for their clients.”
Iress adds Knowledge Bank access
Knowledge Bank confirmed that brokers will have full and free access to all of the criteria it holds on the lending types available through Xplan – residential, buy-to-let, self-build and second charges.
This will be included in the price of their Xplan licence.
Andrew Simon, executive general manager, product, UK Iress said: “We’re thrilled to be integrating with Knowledge Bank.
“At this particularly difficult time in the market we’re trying to make the lives of our customers easier and this integration means that, rather than spending time checking lending criteria, they can focus their efforts on where it’s most needed – on advising their clients and providing value.”
Knowledge Bank CEO Nicola Firth noted that since the coronavirus outbreak and the announcement of payment holidays, more than 4,000 pieces of criteria have changed in under a month.
“But even before then there were 9,200 pieces of criteria either added or changed in the first quarter of this year, so it is clearly impossible for anyone to keep this in their head,” she said.
“This integration with financial technology company Iress, and its mortgage software Xplan, means that brokers can now search for both products and criteria all in one place receiving the most accurate and up-to-date information.”