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Lenders playing safe – or just making smart business choices?

Corey Whelan

September 11, 2020

Corey Whelan is director at Cambridgeshire Money

In the current marketplace it appears impossible to get away from comments on the lack of available products at high loan to values and if you follow enough brokers on social media then the crying out for more lenders has become a daily occurrence which from a broker & customer perspective I complete get.

The market appears to have the enquiries but not enough products for those enquiries.

Something I always personally do is think about things from a business perspective and to try and detach the emotional element to it.

With my own company I know how much each enquiry is worth to me, how much every fact find generates etc as I feel knowing this enables me to make the right choices for my business.

So for me personally, I’m not the slightest bit surprised that we aren’t seeing a rush back by lenders and when lenders do bring out products they aren’t exactly around for long.

All you have to think about is the business side of things. My first two thoughts on this are first of all workforce, is it still at reduced capacity?

But I think a lot of lenders are returning to norm or at least getting used to the level of staff they are working with to allocate their resources better.

Then I think to funding as when COVID first started some lenders dropped out due to not being able to obtain funds.

Some lenders could be experiencing this, but some lenders are returning to the market even if they obtain finance from capital markets and we all know that banks have money to lend.

I also believe that lenders still want to lend but this is where my point on smart business decisions come in.

Why would some lenders want to increase their risk by offering higher than 85% LTV when all of us brokers are screaming about busy we are?

Lenders are still receiving an influx of business, if anything the Stamp Duty Holiday is likely to have caused a bit more of a boom in home movers where you’re less likely to need above 85% LTV anyway.

If lenders weren’t getting the business levels they wanted they could easily increase their LTV and be snowed under before the day is out, but what business would take an unnecessary risk just because us brokers have asked really nicely?

But for me, the real smart business people are the lenders actually operating at 90% LTV.

They aren’t doing this to help the marketplace or get people moving. 90% LTV right now is a money making machine.

At the time of writing this there are 3 lenders offering 90% LTV however two of them have restrictions. So these two will both only consider first-time buyers, they will only allow a maximum term of 25 years, only consider houses older then two years.

Then further to that one of them you can’t use if more than 25% of your deposit is a gift.

So not only do these two cover 66% of the 90% LTV market but they are de-risking their business as much as possible whilst gaining higher interest rates then they would have achieved 6 months ago.

One of these lenders is even tying you in for either a seven year fixed rate or 10 year fixed rate.

Their CEOs and shareholders probably couldn’t ask for more. Long commitments and as less risky business at 90% LTV then they’ve ever had.

But let’s not forget the final lender, if either of the above two options don’t suit you, you may have a larger gift then allowed, you may want a mortgage term or maybe you want to move sooner than seven years and don’t want to be penalised, the final lender is sitting prettiest offering higher interest rates for their two year fixed rates then the lender offering seven year fixed rate and if the funds aren’t available for a product fee then you’re looking at interest rates at near on 4%.

Some people will probably read this and comment about rates at 10% plus but talking modern times what lender could have got 4% interest for a 10% deposit mortgage with completely clean credit?

Absolutely no-one and now look at them, completely snowed under with work and probably still not wanting to withdraw those rates!

We’ve been used to it being the good old times with interest rates for customers for many years, can you blame banks and lenders for cashing in when they have the opportunity?

I can’t – smart business that!


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