More lenders are relaxing affordability criteria to make it easier for borrowers to qualify for mortgages and larger loan amounts, brokers have suggested. A number of lenders have openly increased loan to income multiples in recent weeks, including Barclays, Platform and Cambridge Building Society.
And Coventry for Intermediaries recently changed its affordability model with the aim of making a “real difference” to the maximum amount customers could borrow, especially those earning between £25k and £70k. As part of the changes, the lender now takes child benefit into account and fewer items are considered ‘essential living costs’. Coventry also no longer takes into account the living costs of financially independent adults living in the property.
Kevin Purvey, director of intermediaries at the lender said the changes are “all positive” and could make a real difference to brokers’ clients. But on top of the providers that are openly talking about changes, a number of lenders are also quietly relaxing criteria, according to brokers.
Providers are under pressure to hit lending targets when house purchase transaction levels are falling, which is in part behind the criteria changes, according to Nick Morrey, product technical manager at broker John Charcol. He added: “To get a slightly larger slice of a shrinking market means lenders have to be more creative in how they get that slice. Dropping rates is not always an option, as margins are tight enough as it is, and things are very competitive in that space already. So that leaves criteria and affordability.”
Morrey also said that a more relaxed approach by lenders is good news for the market and doesn’t signal a return to conditions in the lead-up to the financial crisis. He said: “If everyone can borrow a little more it may well help the housing market, which no-one really wants to see crash. This is just lenders getting back to some of the rules they used in the past – not all. Clearly lenders and brokers have a duty of care to borrowers to try and prevent them from over-committing, but we also try to help people with home ownership. I hope these changes will enable the latter without compromising to produce the former.”
Brokers said the more relaxed approach being taken by lenders is in many ways common sense and good news for the market. Greg Cunnington, director of lender relationships and new homes at broker Alexander Hall, said one of the largest issues in today’s market is the purchase price to earnings ratio, meaning that maximum borrowing to a client is key, especially in London.
Cunnington added: “As lenders face increased competition they are having to address where in the risk curve they are most comfortable making criteria amendments. This year has seen an increased move to relax affordability models and to increase maximum income multiples, albeit typically with loan to value or minimum income requirements, which I feel is very welcome.”
Sebastian Riemann, mortgage consultant at Libra Financial Planning, said: “Coventry is certainly on the right track and hopefully we will see others follow their example in the not so distant future. There are certain lenders such as Natwest, and more recently Santander, that have taken a more balanced view on optional deductions on payslips similar to that which we have seen by Coventry. It would be nice to see more lenders taking this common-sense approach as clients often do have a choice whether to take these optional extras offered by employers.”
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[Source: Mortgage Solutions]