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News Analysis: Stricter affordability stress tests urged for Help to Buy

Brokers told to ensure borrowers can continue to make repayments

Mortgage brokers have been warned to rigorously test the affordability of borrowers applying through the Help to Buy equity loan scheme to ensure cases do not fall through at the 11th hour.

Industry specialists report that HTB agents are using a new stricter stress test on the affordability of the equity loan and mortgage combined, to ensure that borrowers can still make repayments they roll on to a standard variable rate.

The new test means that lenders with an SVR over 4.8 per cent are effectively being branded unaffordable for most borrowers in this category.

Some lenders, such as Kensington Mortgages, have responded by reducing their SVR to ensure that HTB borrowers are not excluded from their products.

Kensington Mortgages new business director Craig McKinlay says: “Recently it has become apparent that HTB agents are looking more closely at whether the borrower will be able to afford the SVR on top of the equity loan repayments. They have always used a notional SVR figure of 4.8 per cent, but now if the rate is higher than this, they re-run the whole calculation and potentially kick the loan out.”

McKinlay says that Kensington Mortgages took the decision to lower SVRs below 4.8 per cent so as to remain active in the HTB first-time buyer market. The issue is likely to cause problems for lenders with SVRs of between 5 and 6 per cent.

McKinlay adds: “It may be a particularly bad experience for the customer because it is done right at the end of the process when they are about to exchange.”

For brokers unaware of the issue, especially those with a low volume of HTB cases, this can mean having to rebroke a deal late in the process.

As many customers see their mortgage adviser as the main co-ordinator who holds their hand throughout their first home purchase, any upheaval at a late stage is likely to cause anxiety and brokers may end up shouldering the blame.

In some instances it may not even be possible to secure another mortgage deal, for example if the borrower has other tricky circumstances because they are self-employed or they have a less-than-perfect credit history.

Ash-Ridge Private Finance independent mortgage adviser Jane King says she always uses the government’s HTB calculator at the very start of the process. With the calculator she inputs the SVR rather than the introductory mortgage rate to ensure payments remain affordable in the future.

She says: “I would always suggest that brokers use the HTB calculators on the government website at the outset to prevent problems like this.

“I have not had any cases fall through because I do this and also have my own affordability check. I would not want to face the risk that the case falls down and because I would be the one that has the most contact with the buyer, they would probably blame me.

“Brokers need to make sure that they are doing all the right preparation so they do not let clients down.”

Advoco Financial mortgage adviser Robert Dibb agrees that it is vital to test cases using the HTB calculators available online to avoid disappointing would-be buyers.

He says: “The most frustrating challenge we come across is where a bank is happy to lend at the required level but the customer’s profile does not fit HTB’s calculator – which leaves them unable to use the scheme.

“It can be a particular problem if the client receives any state benefits or maintenance as these seem to have little or no impact on the HTB calculator, whereas most high street banks would factor this in to income.”

Another area that has proved challenging for brokers has been HTB remortgages, but Dibb says this is improving.

“We are certainly seeing more lenders offering remortgage products, but deals with bigger cashback instead of free legals would be useful so that clients can instruct a solicitor with HTB experience,” Dibb says. “Otherwise, they are dependent on the free legal teams who have limited experience and often charge high additional fees.

“This is also very much the case with shared ownership remortgages – particularly if there is an element of staircasing.”

Dibb says that generally the clients he sees who took out HTB five-year deals at the start of the scheme’s launch have fared well, with house price growth and wage increases allowing them to staircase up their share in the property.

He says: “However, with shorter-term two-year products, it is less positive as the new-build market has taken a bit of a hit in recent times and some clients have seen a slight fall in the value of their property.”

A spokesperson for HTB at Homes England says: “It is only right that we take appropriate measures to assess the sustainable affordability of a customer’s borrowing. This check has been in place since 2014 but it is only recently that we have seen limited cases of lenders with follow-on rates higher than 4.8 per cent.

“In cases where follow-on rates are over 4.8 per cent, financial agents should simply check with their local HTB agent whether the affordability requirements are met.”

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