All types of lending except for sub-60% loan-to-value (LTV) for employed applicants looking for repayment mortgages were difficult to come by. Gradually the industry has relaxed again and started welcoming borrowers with varied circumstances but there is still far to go.
This week our panel of experts is looking at examples of common sense underwriting and considering which areas lenders are still falling short.
Tom Cleary, financial services manager, Start Financial Services looks at buy-to-let criteria into retirement.
Dominik Lipnicki, managing director of Your Mortgage Decisions reflects on the lenders doing well in the later life market and who consider interest only.
Aaron Frizzel, compliance director, Clear Mortgage Solutions, takes a positive stance on existing criteria within the buy-to-let market.
Commonsense and logic have never been in abundance in the mortgage market and are even rarer commodities since the Mortgage Market Review last year but the buy-to-let market is lacking even more than the residential sector.
The most obvious area in which lenders could be more flexible is lending into retirement. I absolutely understand that residential mortgages should be linked to personal income before and after retirement. But it is completely beyond me why most lenders insist that a buy-to-let mortgage can only run to an individual’s retirement age. Why? The property will not stop producing rental income when the owner retires. Indeed, it will provide a valuable source of additional income at a time when it is most needed.
Lenders like TMW and Skipton have a more pragmatic approach in this regard so why can’t more lenders follow their lead? With the changes to annuities and the availability of more of their own cash to pensioners on retirement, the buy-to-let market is definitely behind the curve and more lenders need to free up this area of policy.
Whilst buy-to-let mortgages need to be more flexible all round like their residential counterparts, I see this as the single biggest area that lenders could improve upon, without causing detriment to themselves or borrowers.
Dominik Lipnicki is managing director of Your Mortgage Decisions
We have all seen significant changes in lending criteria since the financial crash and more recently MMR.
Many of these changes were welcomed by our bruised industry and in some cases, the changes were long overdue. What some are asking is has the pendulum swung too far the other way? Have lenders really adjusted their criteria to reflect the social changes that we have seen in our country? Far from it in my opinion.
Lending past the usual retirement age is often difficult with very few lenders taking on board the fact that people now work in later life and this trend will continue to grow. Lenders like Principality should be commended for taking a more realistic view on this issue. However I wish they would go further by allowing overpayments, so that clients could pay the loan off quicker, without committing themselves to the initial high payment.
Interest-only borrowing is still a struggle to obtain. Whilst this form of lending should be restricted lenders still fail to acknowledge that for some clients, this is the best option. For example a junior doctor, barrister or someone wanting to work part time while the children are small, would all in my view be right to consider an interest-only mortgage.
None of us want to go back to some of the irresponsible lending practises of the past. I just wish that lenders would sometimes think outside the box when designing criteria.
I would suggest at present that, although the choices across the buy-to-let market could be bettered for brokers and clients, the choices have certainly improved over the last couple of years.
Whilst certain lenders have quite an expansive and specific lending policy with buy-to-let lending in mind, i.e. BM Solutions and TMW, others which offer these products present the broker with a more labour intensive option. Elements such as minimum income thresholds and rental calculations can be a stumbling block.
The lenders appear to be making efforts to protect themselves and in doing so, protecting borrowers. It would be counterproductive if the lending policy of some or all encouraged overambitious landlords to overcommit in terms of loan-to-value, or indeed potentially restrict their personal borrowing if they happen to be using their income for rental properties. Whilst the Woolwich have opened up this area, it is a niche area which often works best if it remains as such.
What our firm has found is that the market appears to be in a position to offer a suitable solution in terms of placing all but a very small number of buy-to-let cases.
What I would add is that when the market has made buying a house difficult for first-time buyers in recent years, making it much easier for landlords to capture these same properties compounds the difficulties elsewhere. As such, I think the lending policy of the lenders for buy-to-let is not too bad, all things considered.