‘No-one wants to see a return to the pre-Credit Crunch mortgage market.’
This sentence, or variations on it, have been uttered and written in the mortgage world perhaps more than any other in the 10 years since the start of the Credit Crunch. There are, of course, good reasons behind this not least the political and regulatory will not to have a repeat of those times, the credit freeze, the fall-out, the loss of jobs, the UK recession, and everything else that came in its aftermath.
I of course get the sentiment but, looking at the recent raft of data issued by the FCA which gives a 2007/2016 mortgage market comparison, I can’t help thinking that while we wouldn’t want to see huge levels of sub-prime lending, lenders taking no affordability considerations at all, borrowers risking it all with 100-125% mortgage loans, etc, there will be other borrower sub-groups who might well look back on the pre-2007 as a market they could actually function within.
Take, first-time buyers for instance: is the mortgage landscape better for them in 2017 than in was in 2007? That seems a very doubtful claim to make and perhaps shows that first-time buyers – who were not to blame for the Credit Crunch and could, quite rightly, claim to be very good credit risks – have actually been severely hampered by the very rules and regulations introduced since then which should really have helped them out.
Here’s just a sample of the data from the FCA which shows just how the environment has shifted in the past 10 years and how the situation has got worse for first-timers:
- Firstly, 22% of new first-time buyers will be over 65 years old when their mortgage deal comes to end.
- They are now more likely to take out a 35-year mortgage term than any other.
- Having taken out a 35-year term they will pay 46% more in interest than those who can ‘afford’ to take out a 25-year mortgage. That’s nearly £39k more in interest.
- The average loan has risen 20%, up from £135k in 2007 to £161.6k in 2016.
- Their average age is increasing – in 2007 30% were aged between 18-35, that figure is now 22%.
This, overall, has resulted in the number of first-timers being 7% lower in 2016 than in 2007, plus (as we often point out) the very products most needed by this borrower group – namely high LTV mortgages – continues to drop steadily. 90%-plus LTV loans now account for just 9% of all mortgages (2016) compared to 14% back in 2007.
Of course there are other shifts that have not favoured first-timers. For instance, lenders have been encouraged not to offer interest-only loans and therefore first-time buyers who might have entertained this idea – particularly at the start of their home-buying journey – no longer have this option. From a (admittedly too) high of 32% of all mortgages, interest-only accounted for just 4% in 2016. And while schemes like Help to Buy have helped, there remain serious questions to be asked, particularly when it comes to high LTV mortgage activity and whether lenders have effectively no choice but to curb their appetite to lend in this sector because of the increased capital they need to hold to offer such loans.
So, what might the potential first-time buyer of today think about the pre-Credit Crunch market? Might they too think it’s a market that should never return, or instead would they look at all those statistics and feel that it might actually be a much more appealing one, even if the sub-prime mortgage crisis was about to ensure that everyone either fell off the cliff or got pretty close to doing so.
This is, of course, without even considering the supply-side issues they face, the cost of renting, their ability to save the required deposit, the need to find friends and relatives to help them, the increased cost of servicing a high LTV mortgage when compared to a lower alternative, and all other first-time buyer-specific considerations which only appear to have worsened their situation in the past 10 years. In that context, a saving on stamp duty will help but I suspect it will not make the difference between someone being able to buy and someone not. It will just help those who were going to buy anyway perhaps buy a little sooner.
First-timers remain one of the biggest groups of borrower losers from the Credit Crunch and, even 10 years on, this shows little sign of shifting significantly anytime soon. Even with everything we know over the past decade, I suspect many first-timers would still like the mortgage market conditions of yesteryear rather than the ones they are faced with today.
Pad Bamford is business development director at AmTrust Mortgage & Credit