ResidentialJul 24 2020

Lending criteria changes problematic for brokers

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Lending criteria changes problematic for brokers

Data provided to FTAdviser by mortgage criteria search system Knowledge Bank shows the number of changes to lending criteria increased significantly year on year.

In the month of June there were a total of 746 changes to residential lending criteria, compared with 390 in the same month last year.

The number of changes to criteria in the buy-to-let sector also increased, from 146 in June last year to 393 in June 2020.

Matthew Corker, lender relationship manager at Knowledge Bank, said changes to criteria had been “impossible” for brokers to keep up with at the beginning of lockdown.

While Knowledge Bank has added lenders and criteria categories to its system, it said the additions should not have made more than a 20 per cent difference in any comparison between the two years.

Total number of changes to criteria

 RESIDENTIALBUY-TO-LET
 20192020Change20192020Change
March185456146%6910601436%
April352963174%12616833%
May36362973%259875238%
June39074691%146393169%
July2380248%17109541%

Kat Tymon, director at Mansfield Money, agreed changes as a result of the coronavirus had been coming “thick and fast”.

Ms Tymon said: “Each lender has a different approach to the pandemic and brokers have learnt to take each day as it comes,” adding that brokers who adapt quickly to market conditions would “survive this historic event”.

Greg Cunnington, director of lender relationships and new homes at Alexander Hall, said there was “no doubt” that keeping on top of criteria changes since March had been challenging.

Mr Cunnington added: “There were periods in April and May where the volume of changes daily was more than you would normally see in a month”.

Changes to income assessments

Anthony Rose, director at LDNfinance, recounted a case of a lender that originally would have accepted a self-employed client’s most recent yearly figures, to take advantage of their improved business performance.

However, Mr Rose said the lender subsequently changed its position to calculating an average of the past two years, which meant the case was no longer able to proceed.

Additionally, Alexander Hall’s Mr Cunnington said changes to criteria, such as a lender no longer accepting 100 per cent of commission income, meant some clients with mortgages agreed before lockdown were informed that they were no longer available.

Nationwide, for example, stopped accepting bonus, overtime and commission income on any new applications from April 2 as a result of the coronavirus. However, the building society said it could consider using overtime income for key workers whose earnings had not been affected by “recent developments around coronavirus”.

Earlier this month, Nationwide had been one of a small handful of lenders that announced they will resume offering products at 90 per cent amid a “more active housing market”.

At the time, Nationwide Building Society said it would increase in the lending limit to 90 per cent LTV for first-time buyers from July 20, with no set limit on the number of home loans available.

The building society said its return to higher LTV lending was enabled by the temporary stamp duty cut, announced by the chancellor on July 8, as well as a “more active housing market” following the lifting of lockdown restrictions that had effectively closed the property market until May.

At the time, Henry Jordan, director of mortgages at Nationwide Building Society, said: “While we will continue to monitor the market carefully, we feel it is the right time to enhance our lending, initially to those looking for their first home. We welcome the government’s announcement on stamp duty and hope our combined changes create a positive impact on a market that, despite being in relatively good health, is still recovering.”

Halifax Intermediaries also announced a change to its treatment of bonus, commission and overtime income from July 8 in an email to brokers seen by FTAdviser, halving the allowable proportion used in its affordability assessment from 60 to 30 per cent.

According to the lender, the reduction was “to reflect there may be an increased element of variance in these income types”.
Chris Sykes, mortgage consultant at Private Finance, warned the reduction would be problematic for customers who look to remortgage and originally borrowed based on their bonus.

Mr Sykes added: “High net worth City workers could find themselves mortgage prisoners unless they search the whole of the market for lenders still doing bonus-backed mortgages.”

Help to Buy fills high LTV void

However, changes to income assessments have not been the only difficulty that brokers have had to contend with, as Mansfield Money’s Ms Tymon described the withdrawal of 95 per cent loan-to-value mortgages and the restriction of lending at 90 per cent LTV as the “biggest challenge”.

Knowledge Bank’s data showed the greatest number of changes to residential criteria in June occurred across ‘maximum LTV’ categories, including the limits for a ‘resale house’ and a ‘pound-for-pound remortgage’.

Ms Tymon added the shortage of high LTV mortgages meant brokers have had to “look at things differently” and offer alternative solutions, such as a Help to Buy equity loan and shared ownership.

Indeed, the Help to Buy equity loan scheme was the second most common search in residential lending by brokers in June, according to Knowledge Bank.

Alexander Hall’s Mr Cunnington said that amid limited options at high LTVs they had seen many buyers look to use the Help to Buy scheme, where most lenders were lending on “very competitive” terms.

Charles Morley, director of mortgage distribution at Metro Bank, commented: “The market has had to adapt to less mortgage products being available, especially at higher loan to values, where lending has been virtually non-existent and only a few lenders like ourselves are currently active.

“All of this has been a steep learning curve for the whole mortgage sector, as we have had to adapt to a rapidly changing environment, a reduction in product availability and a remote way of working.”

chloe.cheung@ft.com