September 2021 |

Finance should deliver more

Stuart Miller is customer director of Newcastle Building Society

Purpose has always been at the heart of business for building societies. Profit is only there to be reinvested into better savings or mortgage products and services for our members.

It’s all very well saying we put purpose first, but how do we actually do it in practice?

At Newcastle Building Society, we have a clear goal to support people to own their own home and to save and plan their finances. At one time, that simply meant providing a safe place for savings, and access to a loan that helped countless couples and families on to the property ladder, shoring them up financially for life.

Today, the market is much more complex. Not only are there many different lenders, but many different borrowers, including government assistance, insurance guarantees, interest only, later life lending, self-employed, and adverse credit.

Borrowers’ income patterns are also increasingly complex. For example, the number of self-employed individuals looking to borrow is steadily rising. According to research by The Mortgage Lender, a third of self-employed homeowners have taken on more debt, and a quarter have deferred mortgage payments to prop up their finances during the pandemic.

These borrowers still need lenders which can understand their individual situations support them as the impact of the pandemic begins to ease.

For us, being true to our purpose requires a constantly adapting attitude to product development, lending criteria and service differentiation.

It’s not enough to distribute mortgages with the cheapest rate possible. Rather, we start with purpose and work back from there, thinking about what borrowers need from their mortgage in order to become a homeowner, or indeed, remain one later in their life.

In practice, this means understanding where deposits are coming from, knowing what the challenges around affordability are for different borrowers, and being prepared to take a pragmatic, common-sense approach through our underwriting process.

As a result, we have pushed ourselves as a lender to create innovative products that enable those who can afford to buy a home to do so in a responsible fashion.

The ‘Bank of Mum and Dad’ is a feature of today’s mortgage market that gets more pronounced every day, but how this money is given to borrowers can really complicate a mortgage application. At Newcastle, we accept gifted deposits from close family, which can equate to some – or all – of their deposit, providing much-needed support for those struggling to save enough to buy their dream home.

There are also borrowers who struggle with loan affordability, meaning there is far less choice for them in the market, especially those on lower salaries at the start of their careers, and people buying on their own without the luxury of two incomes to support the mortgage payments. By ignoring the needs of these groups, lenders risk exacerbating social inequality.

Understanding the implications of this is what drove our decision to offer Joint Mortgage Sole Proprietor mortgages, which allow one family member to be added to the loan to support a single occupying borrower.

The ownership of the property remains solely in the name of the occupying borrower, but they can use the income of a family member to increase their borrowing capacity to acquire the mortgage. It’s ideal for those whose income will rise in the future, but who for a short time need the support of a family member to get onto the property ladder.

Raising a healthy deposit through regular savings could be considered the biggest challenge to purchasing, rather than income and affordability. Our Deposit Unlock helps borrowers secure a new-build home up to a value of £330,000 with a deposit of just 5%.

It’s an alternative to both the recently launched government Mortgage Guarantee Scheme and the Help to Buy scheme, which ends in 2023, and is available to both employed and self-employed borrowers.

Finally, it’s important that lenders continue to offer high loan-to-value (LTV) products which include 90% and 95% LTV options for those living in parts of the country where house prices are particularly high and even a 5% deposit can be £40,000.

Putting purpose before profit isn’t always easy. In fact, it’s often quite hard. But that’s why we do it – it’s hard enough for borrowers to buy their first home, it’s our job to make it easier.