BMPS: Big lenders could learn from private equity scheme affordability models – Cunnington
Speaking at Mortgage Solutions’ British Mortgage and Protection Senate, Greg Cunnington, director of lender relationships and new homes at Alexander Hall, said he had been completing several cases a week with Generation Home in the month his firm had been using them.
The discussion, which took place under Chatham House rules, centred on whether private equity homeownership firms could replace shared ownership and Help to Buy schemes.
It was suggested that brokers needed to make sure clients understood the varying differences between each private scheme and government-backed initiatives especially when it came to pricing.
Cunnington said: “You have Generation Home who are a lender, not a scheme. We’ve only been using them for four weeks and we’re doing several cases a week because the affordability at the high loan to value (LTV) is so smart, how they’ve done it all under the same charge and the way they look at the term into retirement.
“It got me thinking immediately, if a big lender could find a way to get rid of legacy systems and adopt some of that, that could change the market. It really could.”
The Generation Home loan is charged in the lender’s name, meaning there is no stamp duty liability. Cunnington said this allowed his clients to borrow up to seven times their income.
He said as Generation Home would never have a marketing budget, it was up to him to introduce the lender and other alternatives as an option as early as possible.
“There’s a way to get the idea out that these things exist,” he added.
The lender launched to intermediaries in Q2 this year. Similar to a joint borrower sole proprietor mortgage, the Generation Home offering allows additional parties to contribute towards a mortgage.
Each party can set their own repayment amount and date and they build up equity in the property which can later be sold or gifted to the occupiers. They can also stop making payments at any time and take themselves off the mortgage before the term ends.
Buying schemes are most in-demand features for new build buyers
A study from Warwick Estates found people buying a new-build home in the UK wanted one with an affiliated buying scheme, as evidenced by the 42 per cent of properties purchased with the additional help of an initiative.
Parking spaces were also in high demand with 39.6 per cent of new-builds offering this feature already sold. This was followed by garden space with demand at 37.2 per cent.
Warwick Estates analysed current new-build stock listed on the market to determine which kinds were most in demand based on the number of homes already under offer or sold subject to contract as a percentage of all available stock.
Most in-demand new-build property type
Despite pandemic lockdown restrictions causing heightened demand for detached homes offering more space, the research shows that it’s terraced homes that are currently most in demand.
Some 45.5 per cent of all terraced home new-builds have already gone under offer or sold subject to contract, with the second most in-demand new-build property type being semi-detached at 44.7 per cent.
COO of Warwick Estates, Bethan Griffiths, said: “New-build homes remain a popular choice amongst many homebuyers and it’s not just flats that are proving popular, with the sector also satisfying the pandemic uplift in demand for larger homes.
“Of course, a new-build home naturally carries a price premium when compared to existing housing stock and, with the stamp duty holiday causing a house price boom, it’s no surprise that demand is high for homes offering the additional help of a buying scheme.
“Above and beyond this financial incentive, buyers continue to value homes with garden space having spent months in lockdown, as well as the more traditional feature of a parking space.”
Across the UK, there are currently 51,282 new-build properties listed for sale. With 18,095 already sold, demand for new-build homes currently sits at 35.3 per cent.
Pepper launches shared ownership pilot
Pepper said that its move into shared ownership was a part of its plans to do more to support schemes that promote affordable home ownership, and make it easier for people to get onto the property ladder.
TMP The Mortgage People is a specialist adviser in the shared ownership sector. Pepper said that the partnership meant it would be able to refine its processes so that it can deliver a seamless experience when its shared ownership proposition is rolled out to the wider broker community.
Kelly McCabe, managing director of TMP The Mortgage People, said that the shared ownership sector needs lenders to take a different approach, and that the firm was looking forward to helping Pepper to get its processes right for the “unique demands” of this part of the market.
She continued: “Shared ownership needs a lender like Pepper Money, who can underwrite each case on an individual basis, particularly where customers might earn fluctuating income or income from multiple sources.”
Paul Adams, sales director at Pepper (pictured), said that moving into shared ownership was a natural next step for the lender, emphasising that its underwriters will continue to assess each application “on its own circumstances and merits”.
He added: “Like with any pilot period, we will get to a point where we will assess the progress we have made in line with our expectations and those of our customers. That will then inform the next steps to be taken and the timing of any controlled rollout to the broader intermediary market.
“This will ensure that we are suitably prepared to support customers in achieving their dream of homeownership, which is always a key aspiration for the Pepper Money team.”
Kensington offers self-employed tolerance in case affordability assessment
The product will assess the affordability of those who have seen their earnings fall by up to a quarter based on the average of the last two years of income. A minimum of three years’ trading history will be required.
The product is available up to 85 per cent loan to value (LTV) with rates starting at 3.28 per cent for a five-year fixed at 75 per cent LTV and a £1,999 fee.
Rates for Kensington’s shared ownership range start from 4.14 per cent on a two-year fixed mortgage and 4.54 for the five-year fixed equivalent.
The maximum loan size is £500,000 which will cover up to 95 per cent of the borrower’s share in the property.
It has no product fees and offers free valuations.
The shared ownership deal will be available on both new build and secondhand properties. Gifted deposits will also be considered.
Craig McKinlay (pictured), new business director at Kensington Mortgages, said: “Over the last year, many self-employed borrowers have found themselves demoralised from applying for a mortgage, either through past rejections or bearing the financial brunt of the pandemic.
“However, we’re not closing our doors on the self-employed. We’re keeping them wide open. Kensington will lend a hand to some of those hit hardest by the pandemic through the range.”
He added: “The shared ownership range will also help those who want their own space to own it. At a time when many have struggled, both products will help make homeownership a reality for those who may otherwise have felt it was out of reach after the pandemic.”
Santander reduces high LTV rates; TSB introduces tracker and shared equity deals
The largest reductions have been made to the 90 per cent LTV products, where the two-year fixed rate product has decreased from 2.57 per cent to 2.24 per cent and the five-year fixed rate product has fallen from 3.20 per cent to 2.90 per cent.
These products are available for purchase only and have a £999 fee.
At 85 per cent LTV, a two-year fixed rate remortgage product has been cut by 0.17 per cent while the purchase alternative has reduced by 0.21 per cent, and both are priced at 1.63 per cent. These deals have a fee of £999.
The fee-free alternatives have been reduced by up to 0.21 per cent and now have rates of 2.06 per cent.
Other significant cuts include the two-year fixed purchase and remortgage product at 85 per cent LTV which has decreased by 0.26 per cent to 1.85 per cent.
There is also the five-year fixed fee-free purchase product at 80 per cent LTV, which has been cut by 0.28 per cent to 2.19 per cent.
Changes will be effective from tomorrow.
TSB launches tracker and shared equity deals
TSB has added two-year tracker mortgages for first-time buyers, movers and remortgagors up to 90 per cent LTV.
It has also launched shared ownership and shared equity deals up to 85 per cent LTV.
Up to 60 per cent LTV, the rate is 1.09 per cent above the current base rate of 0.10 per cent. Between 60-75 per cent LTV, the tracker rate is 1.29 per cent above the base rate.
At 85-90 per cent LTV, the tracker rate is 2.64 per cent above the Bank of England base rate.
All products have a £995 fee.
The two-year fixed shared ownership products have rates varying from 1.69 per cent up to 60 per cent LTV to 2.54 per cent at 80-85 per cent LTV.
Together revamps mortgage range; LendInvest reduces buy-to-let rates
Its Prime Plus range has been extended to cover shared ownership and RTB, with rates beginning at 3.59 per cent two-year fixed and 4.99 per cent for the five-year fixed rate.
The lender also cut rates on its second charge two-year fixed mortgages from 4.29 per cent to 3.99 per cent for capital repayment, and from 4.79 per cent to 4.49 per cent on interest only.
Together added a two-year fixed rate for first and second charge consumer buy-to-lets, with rates beginning at 5.69 per cent and 6.19 per cent respectively.
Additionally, two and five-year fixes have been launched to its buy-to-let range across standard and specialist offerings. Rates begin from 5.19 per cent and 5.49 per cent respectively, the lowest within these offerings for the lender.
Sundeep Patel (pictured), director of sales at Together, said: “We’re committed to offering our customers the right mortgage deals to meet their ambitions. Whether that’s getting their first foothold on the property ladder through shared ownership, buying the council house they’ve lived in for years, or expanding their rental portfolio, we believe that we have the competitive products they’re looking for, even if they’ve previously been overlooked by mainstream lenders.
“We also think it’s vitally important to provide much-needed support for the many borrowers whose financial circumstances may have been affected by the Covid-19 pandemic while, at the same time, offering the certainty and security provided by fixed-rate products.”
LendInvest updates buy-to-let range with rate cuts
LendInvest has made changes to its buy-to-let product offering along with rate reductions for borrowers financing standard properties and homes in multiple occupancy (HMO).
The two-year fixed buy-to-let product at 65 per cent loan to value (LTV) has a rate of 2.85 per cent while the five-year fixed is priced at 3.04 per cent.
The lender’s five-year 75 per cent LTV product has been reduced to 3.20 per cent for standard properties.
For small HMOs, the two-year fixed rate product is now available at 3.04 per cent, and the five-year fixed rate product at 3.34 per cent.
LendInvest has also introduced a two-year fixed product at 75 per cent LTV with a rate of 3.69 per cent, and five-year fixed at 3.95 per cent for large HMOs and multi-unit blocks (MUBs).
Borrowers are eligible for a reduced £150 valuation fee on standard properties.
Andy Virgo, sales director at LendInvest, said: “We’ve had a hugely productive summer at LendInvest.
“The opportunity to bring this newly priced range of products to our broker partners attention is welcomed and should be seen as a sign of our commitment to help landlords access not only great service and processes but compelling rates too.”
Virgin Money cuts rates and launches purchase and remortgage products
The lender has brought out three remortgage exclusives, including two five-year fixed rates and one two-year fixed rate.
The rate for its five-year fixed rate remortgage product at 75 per cent loan to value (LTV) starts at 1.29 per cent, whilst the five-year fixed rate remortgage product at 80 per cent LTV has a rate of 1.95 per cent.
The two-year fixed rate remortgage product at 80 per cent LTV has a rate of 1.64 per cent.
The purchase exclusive, which comes with £1,000 cashback, is available on both a two-year and five-year fixed rate at 85 per cent LTV.
The two-year fixed has a rate of 1.93 per cent, whilst the five-year fixed rate starts from 2.33 per cent.
The lender has cut the rates on its two and five-year fixed rate purchase product at 80 per cent LTV by 0.16 per cent, with its two-year fixed rate pegged at 1.77 per cent and its five-year fixed rate now standing at 1.99 per cent.
Virgin Money has also made a range of cuts to its core residential, shared ownership and BTL range.
In its core residential range its five-year fixed rate at 90 per cent LTV with no fee has been cut by 0.58 per cent to 3.04 per cent. Its equivalent no fee product has gone down by 0.47 per cent to 2.94 per cent.
Its two-year fixed rate at 95 per cent LTV with no fee has been reduced by 0.2 per cent to 3.38 per cent, whilst its two-year fixed rate at 90 per cent LTV has fallen by 0.4 per cent to 2.39 per cent. Both products are subject to a £995 fee.
On the shared ownership side, its five-year fixed rate at 85 per cent LTV has fallen from 3.6 per cent to 2.99 per cent. Its five-year fixed rate at 90 per cent LTV has gone from 3.71 per cent to 3.39 per cent.
The lender has reduced the rates for its BTL products by up to 0.3 per cent, with its two-year fixed rate at 80 per cent LTV decreasing from 3.29 per cent to 2.99 per cent.
Its five-year fixed rate BTL product at 80 per cent LTV has been cut by 0.17 per cent to 3.18 per cent, whilst its five-year fixed rate at 75 per cent LTV has fallen by 0.1 per cent to 1.99 per cent.
The above trio of BTL products are subject to a £995 fee.
Virgin Money cuts rates and adds shared ownership green mortgages
The products include a two-year fixed with a rate of 2.28 per cent and a five-year fixed at 2.63 per cent. Both are subject to a £995 fee.
Additionally, the lender introduced a five-year fixed intermediary exclusive at 80 per cent LTV, which has a £1,000 cashback, and has a rate of 2.15 per cent.
Virgin Money has also made a series of rate cuts on its core residential range between 75 per cent LTV and 95 per cent LTV of up to 0.52 per cent, including its two and five-year fixed greener mortgage products at 85 per cent LTV.
The two-year fixed greener mortgage has been reduced by 0.1 per cent to 2.13 per cent and the five-year fixed greener mortgage has been decreased by 0.05 per cent to 2.48 per cent.
The lender has also cut its five-year fixed at 75 per cent LTV fee-saver has been cut by 0.52 per cent to 1.76 per cent.
Virgin Money reduced the rates by up to 0.25 per cent on select shared ownership products between 85 and 90 per cent LTV.
The lender’s two-year fixed fee-saver at 85 per cent LTV will now stand at 2.74 per cent, down from 2.99 per cent. Its five-year fixed at 85 per cent LTV has fallen from 2.95 per cent to 2.73 per cent.
Virgin Money has also expanded the LTV on buy to let fixed products from 60 per cent LTV to 65 per cent LTV.
The changes come into effect from tomorrow.
Halifax to cut rates on first-time buyer and homemover products
The changes come into effect on Monday and include rate reductions on new-build and affordable housing as well as shared equity and shared ownership.
The largest rate reductions of 0.25 per cent are on two, three and five-year fixed products at 60 to 75 per cent loan to value (LTV).
This includes a five-year fixed homemover product at 60 per cent LTV which has been cut from 1.73 per cent to 1.48 per cent. The product is subject to a fee of £1,499 and has a minimum loan value of £250,000 and maximum loan value of £1m.
There are also select rate reductions of up to 0.2 per cent on two, three and five-year fixed rates at 75 to 80 per cent LTV products.
An example of this is a five-year fixed first time buyer product at 70 to 75 per cent LTV, which has been cut from 2.32 per cent to 2.12 per cent. It is subject to a product fee of £999 fee and has a minimum loan value of £25,000 and maximum loan of £1m.
On 80 to 85 per cent LTV products, rates on two, three and five-year fixed terms have been cut by up to 0.14 per cent.
This includes a two-year fixed new-build homemovers product at 80 to 85 per cent loan to value, which has been cut from 2.86 per cent to 2.72 per cent. It has no product fee and is available between £25,000 and £1m.
Brokers optimistic about First Homes scheme but express concerns over rollout
Connells’ new-build mortgage services partner Louise Jacob said: “I think it can only be seen as a positive thing, giving customers another option to fulfil their dream of getting onto the housing ladder.”
Coreco’s managing director Andrew Montlake said that the scheme looked very promising for first-time buyers, especially for key workers who were often priced out of living in cities they worked in.
However, he said that there were questions about how the valuation process would work and how advisers would approach the scheme, as it primarily focuses on a property rather than a mortgage.
The scheme launched earlier this month, with Chorley Building Society, Darlington Building Society, Halifax, Leeds Building Society, Mansfield Building Society, Nationwide Building Society and Newcastle Building Society all participating.
It aims to help first-time buyers and key workers get on to the property ladder, with a minimum 30 per cent discount on market prices on certain new builds, with the discount to stay in place upon resale. Local authorities and neighbourhood planning groups also have discretion to give 40 per cent or 50 per cent discount if they can “demonstrate a need”.
As part of the scheme, the price for properties must not exceed £250,000 outside of London, or £420,000 in Greater London.
Eligibility requirements indicate a combined annual household income should not exceed £80,000 or £90,000 in Greater London, and the purchaser should have a mortgage or purchase plan to fund a minimum of 50 per cent of the purchase price.
The government has said the First Homes scheme should account for 25 per cent affordable housing units delivered by developers.
The first batch of 12 First Homes went on the market last week in Bolsover, East Midlands, with the government pledging to build a further 1,500 homes by the autumn.
First Homes compared to other schemes
Jacob said the First Homes initiative may prove to be cheaper in the long-run than the shared ownership scheme.
She explained that whilst shared ownership was a “great scheme” for people with lower deposits, after rents, service charge and mortgage costs it may not be the most cost-effective way to own a home.
She said: “The government’s First Home scheme offers customers another route that may work out cheaper for customers, both on a monthly basis and in the long run.”
Jacob continued that the introduction of 95 per cent loan to value (LTV) mortgages had been a boon to the market, but this did not typically apply to the new-build sector as it can be excluded as a property type for those with a lower deposit.
Lisa Burns-Kent, new-build sales director at Meridian Mortgages, added it would not be a single solution for brokers but said the “more tools in our tool kit the better”.
She continued: “As a broker you have to consider so many requirements. People may not be eligible for Help to Buy or shared ownership, so there is definitely a place for it.”
Greg Cunnington, Alexander Hall’s director of lender relationships and new homes, said the scheme was a “very welcome addition to the market” but added that due to its various restrictions and requirements it would probably not be as popular as Help to Buy in terms of volume.
He hoped that combined with increased mortgage product availability, suitable affordability criteria for lower deposit mortgages and private schemes, initiatives like First Homes and shared ownership would give low deposit borrowers increased options. He continued that this would be especially important once Help to Buy comes to an end.
Customer demand and rollout
Brokers said there was definite interest in the scheme, with customers already getting in touch with enquiries but added it was still early days as properties needed to be built and further government guidance is needed.
Jacob said she already had clients calling and looking to leverage this scheme over Help to Buy. She also said it had definite appeal due to the discount, as customers were being priced out of areas they lived in and forced to move further away.
However, as the scheme is in its infancy, developers are still getting to grips with it and noted that brokers would need to step up.
Jacob added: “As the scheme is currently in its very early days, I don’t have any developers using it yet. However, when any new scheme is announced, it’s down to people like me (new homes mortgage specialists) to educate developers, local housing associations and councils on how the scheme works, how it can fit into their business model and what the benefits are.”
This was echoed by Burns-Kent who said: “The government [is] very good at launching these things and bringing them to the market, but they need to get lenders and builders on board first.”
“I have got builders coming to me and asking how they can get involved. The guidance needs to be very clear,” she added.
She added that further detail would be needed as to when the scheme would go nationwide, and information was currently “drip-feeding” through.
These concerns were also brought up in a report from the Housing, Communities and Local Government committee last week, which said the First Homes scheme sounded promising, but the government needed to outline its timetable as soon as possible as to when properties would be available. It also said local authorities should have discretion on the proportion of homes built which would be First Homes.
Montlake added: “The proof will be in the proverbial pudding and it’s important that those looking at this type of scheme really understand the details around it and the limitations on resale when they want to move on. Let’s hope it does not cause as many issues as it attempts to solve.”