Prudence still needs to be the order of the day for home lending

We live in an age of prudence, of austerity, so it must be disturbing that a new poll has found that there is considerable support for 100% mortgages and another that the Bank of Mum and Dad is an important part of the lending process.

I personally remember being literally able to waltz in to see the bank manager and coming out with a 100% mortgage. Then Black Friday struck and I watched office colleagues turn white as the interest rate rose and rose.

I was lucky, I had a relatively small mortgage but the payments still almost doubled. That folks, is reality and with all the Brexit uncertainty around I would certainly caution against such things but I do think that there needs to be more choice when it comes to getting a loan for a home, and more flexibility.

It was somewhat disturbing to read the new report from the Building Societies Association saying that 87% of its members expect the Bank of Mum and Dad to play an increasing role in helping first time buyers get on the housing ladder over the next five to 10 years.

The BSA says, however, that this is not necessarily a bad thing, and it added that lenders do need to offer more flexible mortgages. It points out that the Bank of Mum and Dad isn’t necessarily all about parents and grandparents handing over cash in the form of gifts or loans. Lenders can and do facilitate support between generations by parents providing guarantees or using their property or savings as security for the first time buyer’s mortgage.

The research found that 70% of the public see the difficulties young people have buying a home of their own as one of the biggest issues the country faces. However, many also believe that both lenders and the Government could do more to help.

In 2017 there were 360,000 first time buyers. The baseline number of new first time buyers every year should be nearer 450,000. But the ability to buy is increasingly concentrated on dual-earning households and those with higher incomes.

Some 59% of aspiring first time buyers expect the Bank of Mum and Dad to support them onto the housing ladder and this means more innovation is needed and lenders are being urged to look again at high loan to value ratio mortgages and how they are underwritten.

It also points out that product innovation in this market is starting to increase the options beyond straight gifting. For example, 59% of building societies will accept a deposit from family members as security, 33% will accept a charge over the property of family members to ease affordability barriers and 10% offer family offset mortgages.

At the same time a YouGov poll has found that 48% think re-introducing 100% mortgages is a good idea. Okay, some lenders already offer 100% mortgages, although these either insist on having a parent act as a guarantor or that they put some of their own money into a ring fenced account to act as security.

But it is not a solution and given what has happened in the past not a way forward, I believe. And there is good news for the lending market. For example, more first time buyers are getting on the housing ladder in London, reaching their highest level in three years with new mortgage numbers up in the third quarter of 2018, new figures from UK Finance show.

However, there is also bad news as another piece of research shows that millions of home owners in the UK believe that they could still be paying off their mortgage when they are beyond retirement age.

Overall 21% of people with a mortgage see themselves still paying off the loan after retirement, which amounts to around three million people, according to the research from online mortgage broker L&C mortgages.

It also found that more than half of them, some 58%, do not have a plan for paying off their mortgage by the time they reach state retirement age and 26% feel that having a mortgage after the age of 65 makes them feel anxious.

The answer is more flexibility, more choice and let’s be prudent, austere even as we go through and beyond Brexit.

Ray Clancy
Editor Property Wire

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