December 4, 2012

Bob Young is managing director of CHL Mortgages





Innovation’ has a lot to answer for. Often touted as some sort of mythical saviour of the mortgage market, the truth is that what is often regarded as a new invention is merely the emperor’s new clothes. In much the same way that much new music either samples or borrows heavily from old classics as new artists struggle to produce truly original works, there is only so much we can do with mortgage products and those that call on lenders to ‘innovate’ often mean something completely different.


I’m often a critic of what short-term memories most people working in financial services seem to have. Although the current recession is probably the worst in living memory, the mistakes that were made certainly weren’t being made for the first time and what was initially heralded as innovation around sub-prime products, high loan-to-value amounts and stretched income multiples were actually bad ideas being reincarnated. Similarly, when brokers and other industry stakeholders call on lenders to innovate, what they are usually requesting is a relaxation in criteria and less stringent checks rather than novel products or schemes. Harsh as it may be to say it, I’m sure most intermediaries aren’t overly fussed by new and experimental mortgages as long as the ‘innovation’ they are presented with manifests itself in cheaper pricing, transactional convenience and increased fees. 


The Mortgage Market Review should prevent the mortgage industry from repeating some of its more inadvisable mistakes, but where there is some room for – dare I say it – innovation is around flexibility and personal underwriting. This isn’t to suggest that lenders abandon the more responsible approach they have taken in the past few years, but merely that adopting more of a common-sense approach in some situations would be more beneficial for all parties involved. We’ve all read the stories of first-time buyers shut out of the market after having applications rejected on tenuous grounds and lenders unwilling to deviate from a box-ticking, ‘computer says no’ mind set, so maybe now is the time for lenders to consider a more tailored underwriting stance.   


Where lenders should be placing their emphasis is on making sure the borrower can afford to pay the mortgage over the term, not on the fact they haven’t established enough of a credit or rental history because they have been forced to live with their parents to amass a sufficient deposit. If lenders focused on this long-term affordability and on providing a quality service throughout the mortgage process, then they would most likely see far more of a positive effect on volumes than any old-fangled (and often short-lived) headline rate or LTV change.


All this isn’t to knock lenders that are truly trying to come up with new ways to attract new borrowers and cater for their existing ones, but more to stop the misuse of ‘innovation’ as a catch-all term for anything that may positively alter the course the mortgage industry is on. Let’s stop minor pricing changes masquerading as innovation and get more to the heart of what borrowers really want and need.  



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