The low-cost home ownership sector is resilient and unlikely to be affected by the Mortgage Market Review
Working in the affordable housing sector it is easy to feel low-cost home ownership has been disproportionately hit compared with other sections of the industry by the credit crunch, lack of mortgages and proposed regulatory changes.
To test this I have spent the past few weeks meeting specialist brokers in the affordable housing, mainstream and high net worth sectors.
These meetings happened to be arranged around the publication of the regulator’s consultation paper on responsible lending.
The reaction to this from the brokers I spoke to depended on their target market.
For example, on the question of income verification, brokers who work with registered providers – formerly registered social landlords – already assess clients using a rigorous income and affordability check on behalf of the Homes and Community Agency that includes looking at savings and outgoings.
This is in addition to other affordability assessments they do. All cases are full status, as lenders that support low-cost home ownership do not offer fast-track.
For those who advise borrowers on affordable housing options it is largely business as usual
Another talking point stemming from the consultation paper was interest-only. The HCA’s guidelines state repayment is the default option, unless there are extenuating circumstances, such as an existing repayment vehicle.
As the majority of our clients are first-time buyers, this has rarely been an issue. Brokers specialising in high net worth customers were understandably more concerned about this.
Large loans, typically set at lending over £500,000, were commonly arranged on an interest-only basis and available up to 95% LTV in the boom years.
To my knowledge no high street lender today would agree to such an advance. Such loan sizes are now the preserve of private banks.
Looking back to 2007, lenders catered for almost every type of customer, from those with the occasional missed payment to recently discharged bankrupts, to the self-employed with no accounts.
Today this market is non-existent. As these customer groups were never eligible for our schemes, brokers who support the government’s HomeBuy schemes have been less affected by the specialist market’s demise.
The resilience of low-cost home ownership is evidenced by the figures – while gross mortgage lending suffered a peak-to-trough fall from 2007 to 2009 of 60%, affordable housing sales in the same period fell by only 19%.
In the past two years the market has almost redefined the notion of mainstream borrowers. In the boom this would have been a prime customer putting down a deposit of at least 5%. Today little is available in the way of 95% LTV and the new mainstream for lenders is 75% LTV.
So while the mainstream and high net worth advisers I spoke to saw some of the FSA’s recommendations as presenting challenges to their businesses, those who advise customers about low-cost home ownership were unfazed, as for them it largely means business as usual.
And with the FSA reporting that lenders expect to deal on average with 29% fewer brokers as a result of the proposed changes, advisers specialising in affordable housing have created a level of expertise for themselves that lenders would struggle without.