I’m a great believer in allowing lenders to price for risk. I also think it should be the lender’s decision how it wants to price its product and the criteria it expects to be fulfilled by the applicant to achieve the loan. Of course, this comes with the caveat that lenders must lend responsibly, which was not the case for many in the pre-credit crunch years.
But we are still left with a situation where vast swathes of borrowers will find themselves at the margins of the market over the next couple of years.
While the base rate and lenders’ SVRs remain low the situation is not too bad.
But when rates rise we will see those borrowers trying to remortgage or those who are self-employed or credit-impaired struggling to gain finance and forced to stay on uncompetitive rates or look elsewhere.
We are left with a situation where vast swathes of borrowers will find themselves at the margins of the market over the next couple of years
To get some more liquidity and sense into the mortgage market it is imperative that lenders feel able to offer these types of borrowers mortgage products.
We are not talking about heavy adverse or serial non-payers but those who have been marginalised through no fault of their own.
Not all borrowers are squeaky clean but many are far from high risk and should be able to find a mortgage product that suits. Lending 60% LTV to a 48 year old on 2 x income with no outstanding debt should not be readily declined because of a few missed credit card payments in favour of an 85% LTV deal to a 28 year old on 4 x income.
It’s not rocket science – all it takes is a simple risk assessment by an underwriter rather then a computer saying no. The re-emergence of sensible lending criteria and underwriting methodology cannot come soon enough.