Coming in from the cold

05 Dec 2014

With barely a few weeks left of this year, it’s quite natural to start thinking about the next 12 months and what movement we would like to see from lenders in terms of catering for those borrowers who are currently, shall we say, being left out in the cold. I’m not talking about any return to sub-prime lending or 100% mortgages but instead believe there are still groups of clients who are sound credit risks but who, for any number of reasons, might not fit lenders’ general criteria.

Much has been made of the increasing difficulties faced by ‘older borrowers’ – although if you have been reading the headlines recently some appear to be counting 40-year olds in this bracket – and clearly we would like to see some movement towards a more ‘common sense’ assessment here. I fully understand why lenders need to look at a 55 year-olds’ potential retirement income if their mortgage term is going to move past the traditional State retirement age. However, I’m not sure this is entirely necessary for a 40 year-old taking out a 25 year mortgage – much can, and will, happen in those intervening years and if you can show me a 40 year-old who knows what their retirement income is going to be then I will show you the borrower equivalent of Mystic Meg.

We would certainly like to see lenders adopting a more flexible approach to older borrowers. There has to be a recognition that traditional notions of retirement ages and working into ‘retirement’ are changing. The UK is no longer a ‘retire at 60/retire at 65’ working environment and while I accept that lenders must ensure they meet the new affordability requirements, we can perhaps hope for a future approach which is more tailored to individual borrowers. 

To my mind, there are a couple of other areas where borrowers are currently under-served which would be great to have addressed in 2015. First up, would be lending to expatriates. Prior to the Credit Crunch and overall downturn in the market six years ago, expatriates living and working abroad could keep their existing property in the UK and rent this out with a view to returning to it in the future. Deals for expatriates were therefore fairly abundant and there was a considerable amount of choice. These deals also considered an expat working abroad who wanted to purchase an investment property as well as keep hold of their residential property to ultimately return to.

Unfortunately since then this product area has been very tightly squeezed and lender after lender either left the market completely or imposed much tighter requirements so that existing and new expat deals no longer met the new underwriting requirements. There have been no further entrants into this market and the UK is only left with a handful of players who consider these clients but they still need to meet quite stringent criteria and some clients unfortunately are unable to borrow, let out or move off a high standard variable rate. Lenders who continue to assist expat clients are NatWest, Clydesdale Bank, Kent Reliance, Ipswich Building Society and Cambridge Building Society however we would like to see more entering this space.

The second product area is around capital raising on a residential property for business purposes – another niche which is currently underserved by the lending community. It’s not very widely known that the MCOB rules do offer some tailored provisions for clients borrowing for business purposes on a regulated mortgage contract. It’s my view that these provisions may not have been investigated or considered fully by the lender community and could be an area for future innovation, providing the risks are fully considered and the MCOB tailoring is applied. 

Clients with existing businesses who want to raise funds to invest further or make future development plans quite often find themselves with a large amount of equity in their homes but this is not necessarily considered by their bank when looking at lending for business needs. A couple of the challenger lenders such as Aldermore and Precise will consider borrowing for any legal purpose apart from paying overdue tax bills but other than that there continues to be a distinct lack of alternative scheme options. Second-charge lending has played its part in this area but with the forthcoming Mortgage Credit Directive, and the moving of this type of lending from consumer credit to FCA regulation, business lending via a regulated mortgage contract may actually become a thing of the past.

Bob Hunt

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