In the three months from July to September, mortgage applications increased by more than 90 per cent compared to quarter two when lockdown restrictions between March and June froze the housing market.
Strong levels of mortgage lending in quarter one and quarter three has driven the bank’s balance sheet growth since the 2019 year end.
The bank’s total income was £2.4bn, a decrease of £202m compared to Q3 2019 due to diluted mortgage margins, less fee income generated from overdraft use, lower deposit returns and fee income from customers spending money abroad.
Margins on new mortgage business and switching transactions that completed in Q3 were approximately 140 basis points which the bank said was in line with its overall book margin.
Margins on new mortgage business placed in Q3 were around 160 basis points, as spreads in the market continue to widen.
Payment holidays
NatWest helped an estimated 250,000 customers with an initial mortgage payment holiday and provided payment holidays on over 82,000 business customer accounts.
As at 30 September, there were 37,000 active mortgage repayment holidays and approximately 55,000 active payment holidays on business customer accounts.
It approved £13bn through the government’s various lending initiatives.
NatWest made a pre-tax profit of £355m, beating market forecasts of a £75m loss. The bank’s fortunes were boosted by a lower than expected impairment charge of £254m. The bank had previously forecast impairment losses of £628m.
Further, it has introduced a new target to have three per cent black colleagues in senior UK roles by 2025, after previously committing to a target of at least 14 per cent BAME representation in senior UK roles by 2025.
Chief executive Alison Rose (pictured) said: “Although impairments were relatively low in the quarter and we have seen some positive trends across our customer base, the full impact of Covid-19 remains very unclear.
“Challenging times lie ahead, especially as the current government support schemes come to an end and as new Covid-19 related restrictions are introduced.”
People working for themselves are now finding that lenders may offer smaller loan amounts and cap loan to values (LTVs) at lower limits compared to employed counterparts.
This comes on top of having more onerous checks on affordability and viability of future earnings.
Lenders crack down on self-employed
Nationwide this week lowered its maximum loan to value (LTV) to 85 per cent for the self-employed, while leaving it at 90 per cent for employed applicants.
It comes after NatWest last month introduced a calculator specifically for the self-employed with loan to income multiples cut for these applicants.
Brokers have also found NatWest has lower threshold earnings for the self-employed, with anyone earning £20,000 or less having earnings rejected for lending, while employed applicants under the same circumstances will qualify for loans worth tens of thousands of pounds.
Metro Bank has also toughened requirements for the self-employed, now requiring six months’ worth of bank statements, up from the three months previously needed.
Sebastian Murphy, head of JLM network, told Mortgage Solutions: “The main concern is that some lenders are victimising the self-employed and lending them less for no good reason.
“Some lenders have become totally neurotic about the self-employed.
“But there’s no evidence or data to back this up – there’s no data to say the self-employed are worse off than the employed.
“So why are lenders treating the self-employed as second-class citizens?”
Self-employed are not all the same
Some sectors, such as travel and hospitality, have undoubtedly been hit hard by the Covid crisis.
However, self-employed workers in other sectors have found business is booming in areas such as construction and healthcare – not to mention mortgages where many brokers of course work for themselves.
But advisers are concerned that some lenders are failing to take account of these key differences.
Stuart Phillips, director at BrokerSense, said: “Putting arbitrary thresholds in place for all self-employed worker is simply not fair – customers are more complicated and there’s more to it.
“You can’t use broad brushes for an entire segment of people.”
Murphy agreed that lenders are not taking enough notice of the sectors in which the self-employed are operating.
He said: “Actually, most self-employed people have done particularly well in the crisis, if they haven’t been connected to travel, tourism or catering.
“How can you label an entire group higher risk?”
Murphy is concerned the approach by some lenders could create a situation where some clients will end up lying about the impact of Covid because lenders are making these “ridiculous decisions”.
Greg Stanworth, managing director at Greenacre Financial Services, said it was unfair how some lenders are now comparing pre and post-lockdown for the self-employed through bank statements and not taking account of how these workers are paid.
For example, people working for themselves often have seasonal peaks and troughs in earnings – even without factoring in the impact of Covid – which is why it’s better to take account of a year’s worth of earnings rather than comparing individual months to each other.
As a result, Stanworth said: “Trying to evidence that someone hasn’t been impacted by Covid is tough… it’s very harsh to compare bank statements pre and post-Covid when someone [for instance] has a robust three-year track history.”
Before Covid, lenders largely would not have requested bank statements, but now many are asking to see the past six months.
Stanworth added that using different criteria for the self-employed is essentially holding a “red flag” to this entire segment of workers.
Unclear what some lenders want
As a broker it has also become difficult to understand some lenders criteria and appetite for the self-employed, according to Phillips.
He added: “In one case it feels like the lender is moving the goalposts – then not giving us any real feedback about what they are thinking.
There are ways they can communicate about what they are after, but lenders are not telling us what they want.
“It’s incredibly frustrating to then explain to clients.”
However, it’s important to note some lenders are still pulling through for the self-employed.
Halifax, Santander and Barclays were highlighted among those taking “sensible views” on applicants.
NatWest did not respond to request for comment.
A Nationwide spokesperson said: “We’re committed to supporting those looking to move home and are currently the largest lender still offering 90 per cent mortgages to first-time buyers without any volume or time restrictions.
“We need to be able to maintain our high levels of service in the face of strong demand generated by the stamp duty holiday. Affordability must be at the forefront of any decision, even more so during these uncertain times. We must lend responsibly.
“As a result, the impact of Covid-19 means that underwriting mortgages for self-employed borrowers is much more complex than before as a result of the difficulties in being able to fully assess long-term affordability in these uncertain times.
“We are therefore temporarily aligning our maximum LTV for self-employed borrowers with other major lenders in the market. As with all lending policies, we will continue to review our approach and hope to relax criteria in the near future.”
Charles Morley, director of mortgage distribution at Metro Bank says: “Metro Bank has been a long-standing supporter of the self-employed sector and we continue to offer a significant number of new loans to self-employed borrowers.
“Our mortgage underwriters work on a one-on-one basis to consider every applicant’s individual personal circumstances, to ensure that any customer taking on debt has the ability to meet their financial commitments now and in the future.”
The deal applies to residential properties purchased with an Energy Efficiency Rating of A or B including new builds and is available at 60 per cent, 75 per cent and 85 per cent loan to value (LTV).
Two-year and five-year versions are available with all deals having a £995 product fee and cash back of £250.
For example, the two-year 60 per cent LTV product is at 1.33 per cent, compared to 1.46 per cent for the standard equivalent.
The five-year fix at 85 per cent LTV is at 2.99 per cent, compared to 3.29 per cent for that standard equivalent.
NatWest said its green mortgage supports the bank’s pledge to help customers become more energy efficient and continues its ambition for half its mortgage book to be at or above EPC C or equivalent rating of C by 2030.
Miguel Sard, managing director of home buying and ownership at NatWest Group, said: “We want to help home buyers to make greener choices, particularly as properties make up 15 per cent of the UK total climate emissions and one of the core parts of our purpose as a bank is to help address the climate challenge.
“Our customers are increasingly interested in purchasing energy efficient homes and by offering those customers a lower mortgage rate, we want to have a positive impact on the environment.”
NatWest also made a series of other product changes alongside bringing in the green mortgages, which included raising rates across its range and withdrawing its broker exclusive two-year and five-year fixes with £995 fee.
The bank has also pulled two and five-year products with a £995 fee and £250 cash back for existing customers.
Changes to NatWest’s range are effective from tomorrow and brokers wanting to secure current products and rates must submit applications by 10.30pm today.
Rate changes include the five-year fixed purchased product at 85 per cent LTV with a £995 fee and £250 cash back. This mortgage has increased from 3.04 per cent to 3.29 per cent.
Its equivalent at 80 per cent LTV has risen by nine basis points to 2.29 per cent, while at the lower end of the scale, the 60 per cent LTV offering has increased 15 basis points to 1.8 per cent.
The two-year fixed fee-free remortgage at 85 per cent LTV has increased from 2.9 per cent to 3.24 per cent and the £995 fee paying option has gone up to 2.64 per cent, a change of 20 basis points.
Skipton cuts new business rates
Meanwhile, Skipton Building Society has reduced rates on its standard residential mortgages for new borrowers, with some products seeing cuts of 0.99 per cent.
As of 28 October, the two-year fixed at 85 per cent LTV with a £995 fee will be cut to 2.85 per cent from 3.49 per cent. For a five-year fixed term at the same tier, the rate has been reduced to 2.99 per cent from 3.94 per cent.
The fee-free five-year fixed mortgage at 60 per cent LTV has been cut from 2.3 per cent to 1.77 per cent while the £995 fee option is 1.45 per cent, down from 1.94 per cent.
Skipton Building Society head of mortgages Alex Beavis said: “We’re delighted to offer a refreshed residential mortgage range for purchase and remortgage with interest rate reductions across the board.
“In today’s ever-changing market, it is important to Skipton that we provide all customers, new and existing, the opportunity to ensure their money and mortgages are in a good place, bringing peace of mind to customers.”
“The housing market continues to become increasingly busy and because of that we urge potential buyers to make applications as soon as possible to take advantage of the current temporary changes in stamp duty,” he added.
This was in response to the recent Black Lives Matter protests following the death of George Floyd and builds on the bank’s existing goal of having at least 14 per cent black, Asian and minority ethnic (BAME) employees in its UK senior roles in five years.
NatWest said there was a higher under representation of black staff relative to the working population and its new target aimed to deal with this imbalance.
A colleague-led taskforce, set up by CEO Alison Rose, was established following the protests over the summer to address the under representation of BAME staff and “tackle the barriers” faced by these communities.
The taskforce has also launched a report on racial equality for its customers and workforce which includes its commitments and targets to set a standard for how the bank engages with the BAME community.
The Banking on Racial Equality report included an employee survey and found that while 79 per cent of its workforce believed the bank offered its employees the same opportunities to progress, when broken down by race 50 per cent of its Asian employees and 28 per cent of black colleagues agreed.
The report also detailed a number of actions the bank planned to take such as interview training with a focus on diversity and a potential financial product to targeted to the needs of BAME communities.
Rose said: “At NatWest Group our purpose is to champion potential, helping people, families and businesses to thrive. It is a clear call to action for us all to break down barriers that hold people back, including those challenges that persist for people from Black, Asian and Minority Ethnic backgrounds. I believe we have a substantial role to play in tackling these inequalities.
“I am fully committed to building a culture at NatWest Group that will embrace diversity and inclusivity to allow our colleagues and customers to thrive.”
“At our best, we are an open, inclusive, progressive organisation, but until that is everyone’s experience, every time, we have more to do,” she added.
The taskforce co-leads, Samuel Okafor, Shamraz Begum and Yinka Fadina, said: “We were delighted to be asked by NatWest Group to lead this work so that we can help the bank better understand the challenges our Black, Asian and ethnic minority customers, colleagues and communities face.
“Our lived experiences, like for many others, have always been a part of us. We know what it’s like to be disadvantaged, to grow up experiencing poverty, to have parents who have migrated to the UK and had to endure years of racism.”
They added: “This impact is felt economically, emotionally and mentally by minorities every day. That is why the work of this taskforce matters so much and allows us to put our purpose into action.”
A new mortgage prisoner affordability calculator has been installed on the bank’s website for brokers who have been approved by the Financial Conduct Authority (FCA) to advise trapped borrowers.
In a statement on its website NatWest said: “…we’re proud to be helping our customers and communities by supporting mortgage prisoners by providing a more suitable and proportionate affordability assessment for these customers from the 30 September 2020.”
If the borrower passes the revised affordability check, they will be eligible for deals within the bank’s standard remortgage range.
The FCA has estimated there are around 140,000 borrowers unable to switch to a better deal despite being up to date with their payments.
To allow banks to help borrowers trapped on the mortgage books of inactive lenders, paying higher than average interest rates, the FCA changed its rules to allow lenders to assess the borrower’s affordability based on their history of maintaining their mortgage.
This is because many mortgage prisoners were issued mortgages under pre-credit crisis lending rules which applied less stringent income and outgoing checks.
Only brokers who are on the FCA’s approved list of firms permitted to carry out the extra steps in the mortgage prisoner assessment process are allowed to submit applications to NatWest.
Eligibility letter fears
Borrowers must be in receipt of a letter from their current lender confirming their mortgage prisoner status to be eligible to apply.
However campaigner Rachel Neale of UK Mortgage Prisoners Action Group fears tens of thousands of mortgage prisoners will not receive letters from their lenders confirming their status.
She said: “Given our experience of the service provided by inactive lenders to date, we have no trust that they will contact borrowers because they would prefer to keep us trapped and paying high repayments each month.
“Prisoners should be able to provide their mortgage statements as proof of their status.”
A NatWest spokesperson said: “In line with our focus on being a purpose led organisation we are committed to providing appropriate support for individuals and the wider market.”
