‘Aren’t we all non-conforming?’`
Nicola Firth, chief executive of Knowledge Bank
I was chatting with friends recently about mortgages (yes, I should leave work alone for even one night!) and one of them made the comment that he was expecting to get the best rates available because he was, in his terms, a ‘perfect’ borrower.
Leaving aside the withering look he received from his wife in describing himself as perfect, on the face of it his claim seemed reasonable. He had a good job with a blue-chip firm that he’d been with for over five years, a 20% deposit and a salary well over £50,000.
To be fair, he was probably right to believe that lenders would be falling over themselves, until he revealed that the property that they had their eyes on was a stone-built farmhouse that had previously been split in two. One half was being used as a residential home and the other as a holiday let, which they intended to return back to a family home on completion… then there was the small matter of the 27 acres of land that it was sat on!
At this point I had to mention that to a mortgage lender the property is as important as the person, and that his search might not be as simple as first thought. After all, it is the property that the loan is fundamentally secured against.
What this led to was a discussion about whether any of us really ‘conform’ to the mortgage market of old. People’s lifestyles and working structures have changed as have the properties they are buying. There are of course borrowers who are 30-year old PAYE employees with a 30% deposit buying a three-bed semi-detached in a cul-de-sac in Surbiton, but so many are not.
Lenders’ criteria requirements have become more and more sophisticated, which is partly in response to the world changing around us but also thanks to years of data analysis. Sophisticated lending models now predict the risk of a loan on a property when paired with a borrower’s individual circumstances. This means that criteria is tweaked and refined in countless ways.
Fundamentally as humans we like to think of things as being good or bad. In most films and even sporting events there are goodies and the baddies.
However, in the real world there are degrees of good and bad, and in the mortgage world ‘different’ is somewhere in the middle. Different is where it all starts to get a little complicated.
Over the past couple of years there has been a resurgence in loans that would sit broadly under the umbrella of non-conforming. For those of a nervous disposition who may baulk at flashbacks to the credit crunch please look away now.
Looking at the range of non-conforming loans now and a decade ago I think highlights some of the confusion on how we deal with ‘different’.
Even the terms used both now and pre-credit crunch could be interchanged and overlapped in a convoluted Venn diagram. Does specialist cover self-employed and when does near-prime become sub-prime or adverse credit?
We are all individuals with individual circumstances and so you could reasonably argue that we’re all ‘non-conforming’ and that’s no bad thing.
To recognise just how big ‘different’ has become look no further than our criteria search system which at the moment contains over 90,000 individual criteria across residential, buy to let, equity release, self-build, second charge, bridging, commercial and overseas mortgages.
For brokers the message is surely that ‘different’ is understood and accepted if you just know where to look.