I think it was PR expert John Wriglesworth who contended that houses should be bought for nesting, not investing.
You would need to have been around a long time to remember that. He said it in response to the last recession in the early 1990s.
I like to think that more than 30 years as a lender has given me a sense of perspective. It is this long-term view which is missing from the argument that anything facilitating 95% LTV purchases will be a disaster for borrowers and is a bad thing.
Those who say this almost certainly have a low LTV mortgage or own outright – a situation likely to have been facilitated as first-time buyers with a 95% LTV mortgage.
They might even be able to gift a large deposit to their children. The youth of today, who in addition to having no pension or free higher education, must also be denied the right to own a home. That is the reality now. The private rented sector has an important role to play but I wonder how many of us would like to swap home ownership for life on an assured shorthold tenancy.
Let’s be clear, 95% LTV lending did not cause the credit crunch. The culprits were an excess of liquidity globally, dreadfullending standards in the US and the recycling of the resultingmortgages internationally. UK mortgages have performed far better than many predicted in 2007/08 – including those at 95% LTV.
The latest 95% LTV scheme targeted for criticism is the NewBuy Guarantee initiative. It’s far from brilliant – hardly surprising as it was designed by a government in a hurry.
For one thing, it only protects lenders from 86% LTV. It needs to indemnify from 75% LTV for lenders to pass on the maximum pricing advantage to borrowers. Don’t forget, lower price equals better affordability. And of course it’s only available on new-builds. That said, it’s not the personification of evil.
There’s already a government-backed indemnity scheme called the Local Authority Mortgage Scheme, provided by a growing number of councils. The maximum LTV is 95%, lenders are indemnified from 75% LTV, facilitating minimum capital weighting, best pricing and better affordability. And it can be used for new-build and older properties.
By contrast, NewBuy is only for first-time buyers and has a lower maximum house price. We’ve recently seen family-assisted high LTV deals but they won’t make a meaningful impact and can only service a tiny niche as they require families with high net worth, need two lots of underwriting – parents and borrowers – and have a high lender capital requirement, thus high pricing.
That said, such schemes are not without their uses. Of course, it’s important that first-time buyers are properly advised. They need to know that houses are no longer a sure route to capital growth and that properties need to suit them for a few years to come.
But let’s not deny them home ownership – the nests that most of us take for granted.
Self-employed are unjustly victims of mortgage apartheid
While so many column inches in the press concern the shortage of mortgage funding for the majority, spare a thought for those who are self-employed, who rarely get a mention.
It has always been a matter of regret through my career that the self-employed have tended to receive a rougher deal than most potential borrowers, simply because they have chosen to be wealth creators, rather than wage earners.
At this time, although it is difficult for employed people, the problems have multiplied for business owners.
Lenders have to assess risk when making decisions and it is not difficult to see that being in business on one’s own can be precarious, particularly in today’s economic climate.
Even though the argument that employment somehow provides greater security is becoming less and less of a given, self-employed people continue to be treated as poor relations when it comes to being assessed for a mortgage.
I am not advocating that they are a special case, but I am amazed that this kind of mortgage apartheid is still considered acceptable by the lending industry.
I think it is incumbent on all of us at the advice end of the market to take the message to lenders that the self-employed are not the risk that they have traditionally been seen as.
Of course, it requires lenders to move away from the ’one size fits all’ school of underwriting and put some faith in the experience of human underwriters to read beyond net profit figures. In today’s market that is a big ask.
I am delighted, though, to continue to champion the cause of the self-employed and I am pleased to report that some lenders are beginning to see them not as bogeymen but as a rich source of quality business – so watch this space.
HSBC lending panel cuts raise questions about accessibility
Last week on Mortgage Strategy Online there was a warning from The Law Society that estate agents have started to advise mortgage borrowers against using HSBC because of its decision to cut its conveyancing panel to just 42 firms.
I can understand why HSBC wanted to limit its panel, not least because evidently the legal profession has been involved in fraud and this, together with the deregulation of legal services, is creating concern. This is an interesting sign of how deregulation causes problems.
But what I find strange is the small number of firms on the panel of a national lender. I suspect it must have more than one firm for each large city but surely that means that a minimum of 50% of its panel is not readily accessible to anyone who does not live in those large cities and it certainly must exclude some major conurbations.
I have considered the geography and it seems ludicrous that some counties possibly have no HSBC representation.
I am bound to say that this behaviour is awfully restrictive, especially when bearing in mind that the Conveyancing Quality Scheme has been set up by the Solicitors Regulatory Authority to ensure lawyers are properly vetted.
I do wonder if HSBC’s motivations for this action need to be questioned.
Stamp Duty on £2m properties will hit all buyers in the chain
The unwelcome announcement in the Budget that a hike to 7% in Stamp Duty for property purchases over £2m will deliver a near-fatal blow to sales at all prices.
Thismisguided coagulation of a government, bereft of new ideas and stuck in a mire ofincreasing old taxes, seems to think that taxing buyers £140,000 for the privilege of buying a £2m home will produce bundles of cash for it to spend elsewhere and buy votes from the less well-off, come the election – it won’t.
Every home owner will be hit, not just the wealthy. Some 70% of first-time buyers, themselves taxed £1,350 when buying at £135,000, rely on the successful progression of property-buying chains.
Their seller may be buying at £300,000 and paying £9,000 in tax, the next buyer in the chain is paying £600,000 for their home, and writing a tax cheque for £24,000, the owner of that home is buying at £1.2m and is already hit with a £60,000 tax shock.
The next purchase in the chain will cost the buyer £140,000 of savings to buy at £2m, which will probably mean no sale and the whole pack of cards collapsing. So even the £135,000 buyer loses out in this scenario.
Higher Stamp Duty always results in price pressure and with this announcement there is little doubt that prices will fall across the board.
Some may think this is great, but lenders will not – they rely on the expectation of a gentle long-term rise to safeguard their loans.
As we have seen only recently to our cost, their only answer to falling prices is to lower LTVs. They’ll do that in a flash as house purchase costs rise further through government taxation.
Evenestate agents recognise the stultifying effect of high moving costs and have trimmed their charges in recent years to try to encourage the market, yet the government thinks the opposite and seeks to earn £234,350 from the chain of only five sales as shown above, doing even less work for it than the agents.
Like the 50% Income Tax rate, punitive charges do only one thing, kill the golden goose and starve the populous.
Chancellor George Osborne assured us that offshore and corporate top-level purchasers will be stopped from avoiding Stamp Duty, but where’s the legislation to enable this change from midnight last Wednesday? Not there.
The only souls that will now be paying 7% will be the law-abiding middle class. Billionaires will still avoid tax on major property purchases for months, if not years.
National Association of Estate Agents
Interest-only LTV at 50% just makes more mortgage prisoners
The additional lenders that reduced their LTV for interest-only to 50% are just creating more mortgage prisoners.
Lenders are not taking account of their existing customers who are on interest-only for valid reasons.
They will be forced to remain where they are particularly if they are approaching the end of their mortgage term and can’t afford to change to a repayment basis.
Because of the age restriction criteria that lenders have implemented over the last two years, almost no-one can take a mortgage into retirement.
These people face the prospect of having no choice but to be forced to sell their properties and rent.
They are being penalised by knee-jerk decisions being made by lenders in the face of Mortgage Market Review. This looks forward and is trying to prevent problems, but fails to take account of customers who have been allowed by the same lenders under the same regulator to do what they have.
It’s time for people to open their eyes.
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