This week we’ve asked our panel of mortgage brokers to share their experiences with lender policy on the matter and how they’ve overcome any hurdles.
Chris Hall, operations director at Mortgage Guardian and mortgage adviser at 1st Call 4 Mortgages, says first-time buyers are often hit hardest by lender overexposure with already limited availability of choice in areas such as Right to Buy.
Matt Sutton, managing director at Emerald Finance, explains that the biggest issue is limited lenders willing to lend on non-standard property types.
Colin Payne, associate director, Chapelgate Private Finance, says when advising clients looking to mortgage a new build property it’s important for checks to be made on lender exposure limits on the specific build.
There’s nothing more frustrating than submitting a mortgage application on behalf of a client only to find out that the mortgage lender has reached its lending limit on a particular development. In most cases it is just a case of taking a step back and placing the business elsewhere after making a few cautionary phone calls, but there have been a few victims of lender overexposure policy. In particular, first-time buyers seem to be hit harder than most as they try to buy their first home.
The problem arises when there is only one mortgage lender within the marketplace suitable for the home buyer. This is widespread on purchases involving housing associations, right to buy applications and section 106 homes where there is a provision on a new development for affordable housing. This can quite literally dash any hope a first-time buyer has of getting on the property ladder. Options are quite limited, so finding another property elsewhere is not an immediate option in most cases as a paradoxical situation arises.
Most lenders will have a strict limit on the amount of properties that they will lend on within a block of flats or housing development to limit overexposure. This generally ranges between 20% to 30% of the development but some developments are higher risk and the lender will take surveyor’s comments seriously before considering the risk. This will apply to residential property within a non-residential area, property on brownfield sites and residential areas where investors have bought up most of the neighbourhood.
Those lucky enough to buy in the first place sometimes cannot sell their home as lenders refuse to lend despite having secured several offers from would-be purchasers. This has become a realisation for some people who bought flats under the Right to Buy scheme.
Despite uncertainty over Brexit, tougher affordability on buy-to-let applications and stamp duty changes, lenders probably won’t be increasing overexposure limits anytime soon.
Issues with overexposure sometimes crop up but it’s generally limited to specific properties or a specific location.
The main area affected is on large blocks of flats, which is understandable. To insure, for example, 40 flats in a block of 40 is a much larger risk for the lender in the event of a range of issues such as fire, flood damage, or structural issues. These risks would not normally be replicated on a standard property on a normal street.
The issue is more to do with limited lenders willing to lend on non-standard property types. Where there is a large block of flats or it is ex-local authority or a non-standard form of construction the number of lenders willing to lend reduces significantly. Placement may be difficult if the lenders willing to lend have reached their maximum quota. What would help the public for this unique section of the market would be for mainstream lenders to take a more open approach to unusual property types, or for them to lend at a lower risk profile such as offering funding but on a lower loan-to-value.
There are certain lenders that are fussier than most where they won’t lend on both flats if a property is split into two units, but fortunately there are plenty of lenders that will consider this so it rarely becomes an issue.
Essentially it’s down to each broker to carry out a thorough fact find with their client to ensure they select the correct lender and don’t waste client’s money or their time on applications that are doomed from the start. Generally overexposure is, in our opinion, minimal.
I recently dealt with a client who owned a property split into two flats and lived in the larger flat and let out the basement flat. I’d have liked to have placed that deal with The Mortgage Works as the client was approaching 70 and would have liked the flexibility of a 25-year mortgage, but alas, TMW were not prepared to lend due to their exposure limits.
Previously, we have worked with a large new build developer and an important part of the process when advising and recommending products/lenders to clients was for checks to be made on their exposure limits on the specific build. Some lenders would have a list of units within that build that they had applications on already and some would refer the matter to their managing surveyor. I recall instances where exposure limits had been reached with a lender, yet a single purchase had fallen through so we then spoke to the lender concerned about replacing that case with another case.
In terms of the current market, the vast majority of our clients purchase converted flats in houses that have been converted into two-four flats and we’ve experienced no issues with lenders declining applications due to their exposure limits. The positive thing about the market now compared to a few years ago is the sheer number of lenders available ensuring that there should always be a solution.