Boris Johnson’s recent announcement of a new ‘independent review of access to mortgage finance’ will certainly have pricked up the ears of most market stakeholders, advisers and networks included.
There appeared to be some initial confusion about the scope of the review, with a belief that this was some sort of ‘root and branch’ review, however this is clearly not required, and instead this review will focus specifically on ‘making it easier for this group [first-time buyers] by widening access to low-cost, low-deposit finance such as 95% mortgages’.
Now, of course, there is still much to learn about this review, not least who will conduct it, however Johnson talked about making it ‘easier to get a mortgage’ particularly for those current renters who already pay more, or the equivalent, in rent as they would for a mortgage, but who still can’t get access to finance, because they can’t save for a deposit or they don’t meet the current affordability criteria.
There appears to have already been a shift that might support those consumers in such circumstances with the Bank of England/FPC’s decision that lenders are no longer required to use the 3% stress test when determining affordability.
Perhaps, more importantly, is how any recommendations that come from this review square the circle between ongoing responsible lending, the new requirements of Consumer Duty, and how lenders might feel about potentially edging up the risk curve, shifting affordability criteria, and perhaps accepting smaller depositsthan they might previously have felt comfortable doing.
Don’t get me wrong, there is undoubtedly room for manoeuvre here. I suspect many advisers will have plenty of cases to draw upon which tell a story where potential new buyers appeared to be in the right position to buy but were scuppered by a lack of savings or not meeting the stricter affordability measures that have been in place.
Helping those wannabe buyers who currently fall between stools is clearly a positive move. I’m thinking specifically of self-employed/contractors who don’t have the sufficient earnings evidence to get a mainstream mortgage, or those professionals trained overseas but with excellent jobs in the UK who don’t seem to fit thecriteria, for example.
And yet, just how do you open up the housing market, particularly for those who don’t have the deposit required, even if it is 5%? Obviously, from a lending perspective, it’s highly desirable that a consumer has ‘skin in the game’, a personal stake, and we’ll all be aware of just how many got burnt through 100% or 100%-plus LTV mortgages.
Will the government have to ‘provide’ the deposit for those who meet affordability but don’t have the savings? How might this resonate with the UK taxpayer? And, of course, what of the 95% LTV mortgage let’s not forget that, not so long ago and without the government guarantee scheme, these products were like hen’s teeth.
I understand that many lenders currently offering 95% LTV mortgages are doing so without government support, but it undoubtedly acted as a catalyst for activity, and that is due to come to an end in December this year.
Will lenders continue to be active in this space when it is removed? Might the government have to extend it, to continue providing that confidence, or can our sector wean itself off government intervention of this kind? After all, there is clearly a demand for such products, and they tend to deliver a healthy margin.
I’m of the opinion that the 95% LTV market would have returned, without the government scheme, although I freely admit that it might not have returned so quickly. Will there be a recommendation from this report that lenders shift even further – 97.5% LTV, for example? And will the government have to do more to help potential first-time buyers in order to create a savings momentum? It already gives a 25% bonus to those saving in Lifetime Isas for housing deposits – will it have to go further?
Of course, as advisers we might well be looking at the report’s results with anticipation; after all, it is likely to mean greater demand for advice from potential first-time buyers and potentially new schemes and intervention, which will require understanding that many consumers simply won’t have.
However, as we know, demand is only one side of the scale, and any report which is likely to fuel demand even further, needs to seriously look at the supply-side imbalance that already exists. Michael Gove recently conceded the government’s target of 300k new properties being built every year by the mid-2020s looks unlikely to be met, and we are some way behind the eight ball on supply in any case, both new-build and second-hand coming to market.
What we don’t need is a report which presents a range of measures that allow more people to secure a mortgage to buy a first home, only to find there is nowhere near enough supply to meet that demand, resulting in prices continuing to rise further, putting them further out of reach for those this review was intended to help.
We will keep watching with keen interest.
Rob Clifford is chief executive of Stonebridge