When the market’s largest lenders make significant changes to criteria, the rest sit up and take notice and we often witness a ripple effect as rivals look to mimic the changes.
This can be both positive and negative. Take interest-only, for example. In February 2012, Santander cut its maximum LTV for interest-only lending from 75 to 50 per cent. Within weeks, the majority of lenders had taken similar steps. In a way, this marked the start of widespread criteria tightening in preparation for the MMR.
In recent months, many smaller players have loosened criteria in sectors such as self-employed loans, new-build and other niche areas. While these are to be welcomed, the real excitement comes when a major lender makes its move.
That is why NatWest’s re-entry to interest-only is a significant milestone given that its parent, Royal Bank of Scotland, is the nation’s fifth-biggest mortgage lender.
It has adopted a sensible approach, too. No longer is interest-only a mainstream option; in fact, to qualify for one of these loans, NatWest stipulates borrowers must have a gross income of £100,000 or more and an “acceptable” repayment strategy, therefore targeting the upper end of the market.
It does not end there. Santander and Nationwide last week announced the launch of a standalone set of 95 per cent LTV products available outside the Help to Buy scheme.
Why is this significant? It shows these lenders see an opportunity in this area of the market and are comfortable to operate in it without the safety net of a Government guarantee.
Are we entering an era in which the super-tankers are becoming less risk averse? It is probably too early to say but the signs are positive.