Comment: The evolution of mortgage products

Sedgwick-Louisa

Over the years, dramatic increases in house prices and a turbulent economy have meant homeownership has become a distant dream for many, particularly the younger generation. As such, an increasing number of buyers are relying on loved ones for financial backing as they look to secure their first home.

Since the 2007 financial crash, the specialist lending industry has become a significant part of the mortgage market. According to the intermediary mortgage lenders association, specialist lenders’ gross annual lending has increased by 19 per cent year-on-year. A lower appetite for risk from mainstream lenders and low tolerance for less than perfect credit histories means that many buyers find themselves underserved by high street banks and building societies.

Innovation and creativity are key to supporting those who are finding it difficult to obtain a mortgage. By combining specialist underwriting technology with a human touch, specialist lenders are able to identify the real reasons behind why a customer might be struggling to raise a deposit on their own or secure the right mortgage for their circumstances and can often find alternative ways to help.

A Helping Hand

At Vida we have recognised the need to bring more creative and versatile products to the market in order to help those with a complex income or previous credit issues to secure their first home.

Our Helping Hand product allows parents to join their child on the mortgage by including their income in our affordability assessment – without needing to be on the title deeds and jointly owning the property. The product also offers first-time buyers a LTV of up to 90 per cent. It is also an attractive solution for parents who own their own home and do not want to be caught out by the increased stamp duty that could apply if they also had to be on the title deeds for their child’s home.

Financial pressures for youngsters today can be very stressful. As a parent, you want to be able to give your child support, no matter what their age or the situation they find themselves in. This is no different when helping your child onto the property ladder. In the past decade, the ‘Bank of Mum and Dad’ has become a well-known phrase. In 2018, Legal & General found that the Bank of Mum and Dad lent £5.7bn and was involved in more than a quarter (27 per cent) of all property transactions.

Help comes in many different forms

Whilst the Helping Hand product was initially launched for parents or grandparents helping their children get onto the property ladder, it is also a way for parents to help children after a major life event, such as divorce. The product has already helped many divorcees stay in their marital home when they perhaps would not have been able to afford the mortgage after their partner has left the property. Vida’s Helping Hand isn’t limited to just parents helping their children; it also allows children to gift a deposit and join their parent on the mortgage until they get back on their feet.

Moving with the times

For specialist lenders, being competitive in the market is less about the rates offered and more about adopting flexible criteria that suit these often-neglected customer segments. Keeping up with industry trends and developments like these is key to driving market growth.

Perceptions of what makes a good borrower are already changing, but there is still more work to be done. For their part, borrowers need to be aware of the growing specialist lending market, not least so that they have the confidence to seek out this kind of mortgage advice, knowing that there may be a lender out there who is able to help them.

As the mortgage market continues to evolve, our aim is to help more customers who have experienced a bump in the road, or those with a complex income stream. This way, we will be able to provide more individuals with access to the flexible lending solutions they need – and deserve.

Louisa Sedgwick, director of sales (mortgages), Vida Homeloans

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