No better time to come to the market
Rory Joseph is director and Sebastian Murphy is head of mortgage finance at JLM Mortgage Services
If you have clients who are looking to remortgage their residential property, are under the 60% LTV threshold, with a strong credit rating, income and affordability to present, then there has perhaps been no better time for them to be coming to market.
The near 1% rates for these types of customers have now gone sub-1% and not just in the 2-year fixed-rate space, with the Nationwide currently having a 0.99% 5-year fix with the likelihood that others will follow, and rates could go even lower.
A month or so ago we might have felt that this ‘race to the bottom’ had run its course – now we’re not so sure – although the big question might be just how long rates will last down here?
There is already some talk of the MPC having to act on Base Rate with inflation on the up, although just what impact this will have on product rates remains to be seen.
Even if BBR does get set back to 0.25% or even 0.5%, are we really likely to see lenders stepping back from a borrower demographic they remain resolutely committed to snapping up? We doubt it.
However, whether this focus on rates from every single major, mainstream lender is what’s really required right now, remains a question worth asking. Are they not simply rewarding a borrower demographic that is already being rewarded handsomely via house price inflation?
Might they not wish instead to use their experience and understanding of the market in areas where it can be truly revolutionary and incredibly beneficial?
Why not look at shifting criteria in the higher LTV space, or reshaping their offering for first-timers, or both? Instead of cutting rates for borrowers who already have more options than you can shake a stick at.
Even a cut to rates at higher LTVs might be worth a look? Does it really cost lenders three times more to fund at loan at 95% LTV than it does at 60%? We understand it will cost more and it will need more money set aside, but does that justify the price being three times as much?
There are other things to consider of course; the significant legacy systems that many major lenders have but then you look at an offering like, for instance, Generation Home, have for first-time buyers and you wonder why there aren’t more lenders doing, if not something similar, then something very close to it.
We talk a lot about Bank of Mum & Dad, parental support, guarantors, joint borrower sole proprietor in our market, and quite rightly too, because – given where house prices are – this is a major requirement for anyone looking to purchase their first home. But how many truly understand the needs of the purchaser and the parent/guarantor, etcetera?
This new lender seems to understand it implicitly, recognising that the guarantor should only guarantee the part of the mortgage the borrower can’t afford.
We’ve been one of the first advisory firms to be able to offer its products and the application for so many borrowers is staggering.
It’s not just parents or grandparents acting as guarantors for their kids or grandkids, it also works the other way around. Kids guaranteeing the mortgage for their parents in order to keep them in the same home, or to allow them to move to somewhere more convenient or more appropriate for their needs.
This can be just guaranteeing the money required to pay the stamp duty or it can be a bigger share, and the further good news here is that it also lends up to age 85. That undoubtedly helps when you’re also able to prove pension income which will not change.
And there are other examples. We recently had a case where the borrower was due to have hundreds of thousands of pounds worth of share options in the not so distant future, which they would use to pay off their mortgage.
In the meantime, they needed a 27-year term to keep their repayments low now, on a low LTV and with it being obvious that they would also be paid more in their job during the career.
It seemed like a good fit for a larger lender, but none would seem to be able to take a far-sighted view, recognise that the position now was a temporary one and be willing to lend. Again, Generation Home did take this view.
This might appear to be something of an advert for Generation Home but what it should show is that there are lenders out there who are not fixated on delivering ultra-low rates, and they are also willing to look at the real needs of borrowers, particularly first-timers who require different options than many are willing to countenance.
There are large numbers of clients for whom this approach is the right one; it is surely only a matter of time before more lenders work this out.