What the mortgage market now needs is innovation. Mortgage lenders continue to keep knocking down their rates and introducing incentives in an attempt to draw in new business but it’s all getting a bit boring. What the market needs are some new criteria that meet the needs of the mortgage clients of the next 5 years.
I was super excited to see Uber, the online taxi app that lets you hail a cab from your smartphone, launch its services in Bristol recently. You can track the driver’s progress using the app and best of all…it’s cheaper, apparently. Uber doesn’t have to pay for a fleet of cars or employ drivers, its drivers are freelance using their own cars and they pay around 20% of their fare to Uber, the rest is theirs, oh and no hard cash changes hands, it is all done through the app. This my friends, is innovation! The company is reportedly worth $50 Billion and the days of being charged over £15 to travel from the top of Whiteladies Road to the Centre of town are reportedly long gone! Whether it will work is yet to be seen but with public demand for the service (over 30,000 downloads of the app in Bristol alone), I am sure that it will be.
The not so exciting mortgage industry needs a shot in the arm to help meet the demands of the thousands of mortgage prisoners stuck on the same rates or the thousands of first-time buyers that can’t get enough deposit together or the thousands of self-employed clients facing draconian lending criteria such as needing 3 years accounts.
Mortgage Innovation for First Time Buyers
It was good to see National Counties Building Society launch some exciting products for first time buyers. Their advert was genius too, a picture of a muscle man with the all too familiar beard that everyone seems to have grown, well, apart from me as I can still only manage a fine whisker at the age of 35, perhaps I will age well…anyhow, the advert has the caption “Grooms his beard, Sculpts His Guns, Mum does his washing”. Like I said, Genius.
National Counties Building Society through their recently launched Family Building society are helping FTB’s get onto the property ladder in 3 ways, through them you can; Use family savings as extra security. The savings are the parents and they place them with the bank, they earn interest on the savings and the FTB can then borrow 95% at a lower rate of 3.29% fixed for 3 years which compares very well against other lenders rates in the market.
And if you (the parent) don’t have the cash then you can use your property as security or you can use savings placed in the Building societies offset savings account which allows you regular access. T&C’s apply of course but this is innovation to help FTB’s secure better terms at 95% and as I mentioned the market really craves innovation at present.
Help the aged!! Lending into retirement.
I think almost ALL of our clients aged 55 or over would be deeply offended to be called too old, or unsuitable for mortgage purposes yet that is exactly what is happening. Fox Davidson have shouted very loudly to anyone that will listen about the blatant ‘ageism’ that is occurring in the mortgage market.
Most lenders will not lend to clients past their retirement age and in most cases the retirement age is set for you! Halifax, one of the top UK lenders, state in their criteria that they will use your stated retirement age or the state pension/retirement age (based on D.O.B) whichever is earlier and then all lending must be based on pension income up to a maximum of age 75.
“I have dividend income and rental income – Why won’t you lend to me past age 65?
Let’s look at a client that has ran his own successful exporting company for 30 years and more. He is a director that at age 60 can take a back seat and let the company be managed by his son’s whilst he still receives dividends and will continue to do so way past his ‘state pension age’ of 65 yet lenders like Halifax are not interested as they haven’t set up a pension to fund their retirement. Never mind his business then which turns over £50m + each year and their property portfolio of 12 London properties all providing a second source of income, yet he can’t have a mortgage past 65 as he doesn’t have pension income. It is a joke and it is ageist criteria and we are surprised it has been allowed to go on for so long.
It is not just Halifax, the criteria is worse with other lenders and there are literally a handful of lenders prepared to stick their necks out and lend past age 75. One of those innovators is National Counties and without starting to sound like an advert for them I do take my hat off to them for trying to help those that are currently not being looked after by the mainstream lenders.
Equity release lifetime mortgages go from strength to strength
It is no wonder then that a study by Age Partnership has found that the number of people who have used an equity release plan to repay an interest only loan has risen from 78 in April 2014 to 229 in April 2015. Although this is a small survey the facts are clear that equity release is currently the only viable option for many clients over the age of 55 that have been deserted by mainstream lenders. Equity release used to have a dirty name but the market has changed massively in the last few years and now the options from equity release loans are very competitive and are nowhere near as restrictive as they once were, we have seen a huge number of enquiries for equity release loans or lifetime mortgages as some lenders call them. There is definitely a gap for mainstream lenders to start lending lifetime mortgages as currently it is serviced by insurance providers such as Aviva, which is odd.
Self-employed second class citizens!
Mortgage lenders sometimes treat self-employed as second class citizens. Let’s use a company and call it ‘Sepp Blatter Ltd’. There are still lenders now that require 3 years business figures for ‘Sepp Blatter Ltd’ and if there has been a face value decrease in profits then some lenders won’t lend. But get this, the same lenders will lend to an employee of ‘Sepp Blatter Ltd’ that started on a full time employed wage only last week! If ‘Sepp Blatter Ltd’ fails as a company then the employee is no more a safe bet to lend money to than the owner of the business.
Innovation is shown by some lenders. Those decreasing profits I mentioned were due to investment in new machinery and technology that will see profits rise greatly in the coming years but as lenders don’t have the time or the resources to be looking at anything more in depth than an SA302 or an accountants reference the self-employed can often be left wanting. Luckily we are whole of market mortgage brokerage and we can approach the few lenders that do use innovation such as the Coventry Building Society. Coventry will use a Ltd company or a sole trader’s latest years figures in the calculations. Furthermore, we can have them accept net profit plus salary rather than using salary and dividends, this is great for someone who does not want or need to take out dividends which would otherwise take them into a higher tax bracket and has therefore instead retained their profits in the company.
There are lenders too that will lend using 1 years accounts or who will lend to professionals that after many years employed have started their own practice and only have 6 months to a year’s accounts BUT this sector still needs more innovation as the self-employed could be better served.
Interest Only prisoners
I wanted to mention the interest only mortgage prisoners. There are people out there and some of you reading this may recognise yourselves as someone who has an interest only mortgage, has bags of equity in your main residence or in other property and has a very valid method of repaying your loan but it is not recognised by the mortgage lenders and no one will lend to you.
Lenders have put in place very restrictive criteria for being able to get an interest only loan, in fact, some like NatWest and Nationwide will only lend on a capital and interest basis. For a client with a multi-million pound company that they intend to sale at age 60 to repay their mortgage so they can go live 6 months of the year in the South of France would find this unacceptable by all mortgage lenders as a repayment vehicle. You must typically have a pension with enough cash to repay the loan or stocks and shares to the value of the loan. Common sense lending went out of the window for interest only a while ago and again equity release lenders are picking up the lending mainstream banks won’t do so to be clear, the lending is happening just not through the banks that you would expect to lend you the money, crazy.
A final thought from Europe….
The Mortgage Credit Directive arrives from Brussels next March and it’s policies are being put in place already. This ruling will not allow any clients with a mortgage to change to a new mortgage lender where they fall foul of the new rules brought in by the Mortgage Market Review of 2014. Until recently lenders had been able to show initiative in helping those clients that were clearly able to pay the mortgage but were now falling foul of affordability rules, but the new directive will offer no discretion, no appeals, it is black and white and you’re either in or out so watch out!
With mortgage lending figures up year on year in April 2015 for the first time since July 2014 let’s hope for some Uber innovation from lenders to give it another boost as we head in the 2nd half of 2015!
Blog by Wesley Davidson all views and opinions are his own. Contact 01179 897950. firstname.lastname@example.org