It is old news now that the housing market is stuck due to the strict lending criteria set by the lenders. Gone are the days where we could obtain 100% mortgages, where an individual was once a good risk, have a decent salary and get a mortgage without any fuss, the lenders are now refusing these applications. Is this all down to the lenders?, I think NOT!.
Rather than look to the lenders for blame, we need to try and understand the reasons behind these restrictions and the drivers keeping them there. Lenders have to ensure that their regulators are confident in their pricing models and the criteria set for mortgage loans. It has been proven with the fall in house prices that placing a one way bet on rising house prices as a mechanism guaranteed to bail out both borrowers and lenders is not a sensible course of action - even a slowdown in house price rises could expose a number of seriously over-indebted borrowers.
For example, lenders have in the past taken on substantial risks through a combination of high loan to value ratios and high income ratios, in part because borrowers are using additional borrowing against property as a means not only of debt consolidation but also of increasing their debt at regular intervals by taking as much advantage as possible of rising house prices. Continued house price appreciation has therefore been masking problems to come and what the borrowers are now experiencing. Therefore lenders need to be cautious and ensure they have robust processes in place for assessment of affordability.
David Cameron and Grant Shapps have both stated they are or will be working with the lenders to negotiate reduced lending criteria, thus hoping to encourage movement within the industry and promote growth. Looking at the rationale behind these restrictions, the task in hand will be a difficult one. This is all good news but as an industry we need timescales as to when these talks will be concluded and any amendments implemented. Confidence in the market as we know is at an all time low, demand is there, but supply and employment is scarce. These talks are crucial to the recovery of the market but at the moment we do not see any clear guidance on any reduction or even if the lenders are able to reduce their restrictions, so confidence remains low.
The industry needs a well deserved kick start. On average the LTV is around 75% with very stringent restrictions, in many cases it goes even lower. With the economy as it is, we are restricting the majority to purchase homes, this cannot be what the Government wants for the industries future. I say speed up the negotiations and explore every possible solution.
Janine Armstrong
Operations Director