Mortgage Introducer April 2021

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REVIEW

LENDING

Budget will focus minds on innovation Xxxxxxxxxx Stuart Miller xxxxxxxxxxxxxxxx, customer director, xxxxxxxxxxxxxxxx Newcastle Building Society

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ost-Budget, it’s already becoming clear that change in the market will come thick and fast. The government’s support for the housing market has generated not only an increase in product sourcing activity, but has also stimulated product development. Product ranges have already been repriced, and the advent of the Mortgage Guarantee Scheme will spur lenders on to either consider joining the scheme or deliver their own higher loan-to-value (LTV) solutions. Chancellor Rishi Sunak unveiled plans for the scheme last month, trailing it just ahead of his much anticipated Budget statement on 3 March. The Treasury’s stated intention is to “mirror the successful scheme that operated along similar lines between 2013 and 2016, and that reinvigorated the market for lending at up to 95% LTV until the pandemic.” While other announcements attracted some less favourable comments, including the decision to reduce the funding available for the Green Homes Grant from April, I’m not sure anyone is decrying the idea of restarting mortgage guarantee support. We are all too aware of the dramatic drop in the number of small deposit mortgages witnessed over the past 12 months. Any measures designed to tackle that must be welcomed by all lenders. However, they must be part of a suite of wider innovations. Although the scheme is yet to launch, it looks likely that the loans funded by it will be unsuitable for securitisation, which will preclude a number of lenders.

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Similarly, lenders accessing the guarantee may choose to apply the scheme to existing housing stock as opposed to new-build and a differential approach taken in the market. Whilst the guarantee scheme lends itself more naturally to lenders with a more traditional funding model, it is with no degree of certainty that the guarantee scheme will be used by all. We have already seen lenders introduce 95% LTV products outside of the guarantee and it is highly likely the innovation will continue, providing cross-market support at higher LTVs through several channels, and ultimately wider choice for consumers. THE BEST OUTCOME

Whilst the government’s approach to opening up higher LTVs has to be applauded, it only solves one part of the equation. The need for good quality advice is ever more relevant to help applicants find the right lender and the best outcome. Brokers know only too well that where a borrower’s income pattern looks even a little bit less than vanilla, lenders offering a more nuanced approach to case assessment offer a potentially better outcome. The manual approach to underwriting that many building societies still take may seem old fashioned when compared to the apps and platforms now prevalent, but in some ways it’s the best thing for borrowers in our modern times. This is especially true at the moment. Millions of people with mortgages and hopeful first-time buyers have been furloughed for all or part of the past 12 months. As we approach the end of lockdown and the vaccination programme continues, we are going to see considerable change in the economy and society. The rise of home working and need for social distancing mean every

business is reassessing itself. Part of this will necessarily reshape employment. There have been numerous redundancies, but more positively, one hopes, lots of new jobs created by virtue of the pandemic’s impact on how and where we live and work. With this comes complicated ramifications for borrowers’ incomes. The risk that a person poses when it comes time to underwrite a mortgage application is now even less likely to fit into a neat algorithm. Those with the resources already in place in underwriting departments will be best placed to offer these loans from the off. WILL THE SCHEME MAKE A DIFFERENCE?

I am an optimist and I think its contribution will be two-fold. First, it will increase people’s collective confidence, with the barriers to home ownership reduced significantly in terms of required deposits. Second, it provides stimulus and brings innovation to the market, with lenders re-entering higher LTV lending either as part of the scheme or under their own steam. We all know just how incredibly busy the market is at the moment. With this scheme and the extension of the moratorium on stamp duty, it’s likely that 2021 will be a pretty positive year. With any boost like this there is always caution needed, given that any rise in the supply of finance invariably pushes up demand, consequently fuelling price growth. House prices are likely to stay relatively buoyant whist government support for the mortgage market continues and base rates stay at low levels. While frustrating for firsttime buyers, this is doubly beneficial at this time. Stability in both the market and house prices is essential in the medium-term. With furlough set to end in September and uncertainty about the impact on employment rates, the government will not want to amplify the economic fallout for either individuals or households. For the moment, things are set for real market innovation, but we must also consider now how we respond as a collective at the point financial support begins to wind down. M I APRIL 2021   MORTGAGE INTRODUCER

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