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Lenders’ timid approach is creating a chain reaction, with the lack of transactions leading surveyors to downvalue due to no comparative
evidence. And of course first-time buyers are caught in this vicious cicle
Cautious lenders are the weakest link
KEVIN PATERSON, SALES AND MARKETING DIRECTOR, ASSURANT INTERMEDIARY
The green shoots that began emerging six months ago seem to be getting a firmer foothold. While they may not be growing with typical spring exuberance they are gaining ground tentatively, assuming they are saplings and not Japanese knotweed - the latest exclusion to hit lenders’ blacklists.
Although approved mortgage applications showed a 45% rise last month compared with the same period last year lenders are increasingly adopting an ultra-cautious approach.
The decline of a mortgage by a high street lender due to the presence of Japanese knotweed in the garden of a property in Cornwall recently was just one recent ludicrous example of this timid attitude.
Meanwhile, downvaluations are still hitting prospective borrowers hard as surveyors struggle to make accurate and recent comparisons to establish benchmarks against which they can realistically value properties. This lack of appropriate data means that many more properties are being downvalued, leading to rejections at worst or significantly increased mortgage costs at best.
Risk-averse lending is also leading to a big rise in the number of blacklisted areas and property types
The creeping risk-averse culture in the lending community is also leading to a significant rise in blacklisted areas and property types - information that is rarely shared with brokers until it’s too late, making an already difficult job virtually impossible and hugely frustrating.
Along with some other lenders Nationwide Building Society recently announced that it would no longer lend on former local authority flats or maisonettes in blocks higher that five storeys whereas previously 14 storeys was the norm.
I’m not sure why this form of property apartheid should be rearing its ugly head. After all, it is a well known fact that most ex-local authority property is considered good stock and in many cases more spacious and better built than what’s on offer in the private sector.
Equally, I can’t see why a sixth-floor flat should be any higher risk for a lender than a fifth-storey one. Sure, the chances of survival for a jumper are significantly lower but I can’t see how this affects the financial probity of the individual or the quality of the security.
Developers have also complained that lenders are imposing unrealistic valuations on new-build properties. They argue that valuations reflect the second-hand value of homes with any premium for newness all but wiped out. A number of lenders are no longer prepared to lend on any flat or house built in the past 12 months.
Of course, it’s our soon-to-be middle aged first-time buyers who are being hardest hit by these latest developments, and it’s a vicious circle given that the lack of transactions in many areas is leading many surveyors to downvalue for lack of firm evidence.
A lesson in reality for MPs
It seems that new expense account restrictions covering second home allowances will prevent the majority of MPs from renting a property in Westminster, as their second home allowance will be limited to £17,400 a year.
The new system, which does not start until 2012, will also restrict this allowance to renting, effectively putting an end to the practice of buying a property and using the allowance to pay the mortgage.
And quite right too. MPs do not need to live within a stone’s throw of the House of Commons to carry out their duties properly.
There is no conceivable emergency that would require them to be able to get to the Commons within a tight timeframe like, say, firemen. And incidentally, firemen don’t get an allowance towards their housing costs.
Predictably, some MPs are bleating about this new restriction claiming that the allowance is insufficient for them to cover rental costs in Westminster. I have a piece of advice for them. Do what the rest of us do - travel to work.
Safety first with products
Platform has taken the bold step of launching a fixed rate that is only available to joint borrowers, prompting fears that it is penalising single clients.
In defence of this decision the lender has said that in its experience joint borrowers represent a better risk than single ones and it is keen to promote this.
This is symptomatic of the market we now operate in, where lenders are looking for ways to innovate without exposing themselves to unnecessary risks - in some cases, no risks.
I’m sure that if the Platform deal is a success other lenders will follow.
I don’t see a problem with such deals. We encounter risk-based pricing in many other areas of our everyday life such as insurance, where underwriters develop clever ways of carving out low risk niches that they can exploit.
Esure, Sheila’s Wheels and Diamond are just three examples of such an approach in the insurance sector and there are many others. Why shouldn’t lenders do likewise?
