Financial services regulators recently announced that they will review the 15% limit that governs the limits that lenders can offer at higher loan-to-income ratios.
At the same time, lenders are free to set their own responsible loan restrictions.
On top of that, this provides lenders with the ability to help more people, and that’s good news – as long as this awareness is enough to make a difference.
Several lenders responded, further freeing up the market. For example, by consensus, we lowered the minimum income threshold to £50,000 (from £75,000) to 5x the income from loans – and expanded our popular “Boost LTI” product that allows access to mortgages up to 5.5x, to the first time borrowing of 95% loans. This means we can provide loans to more people, especially those with smaller incomes and smaller deposits.
Earlier this year, we also determined how much interest rates we will lend to borrowers by lowering our interest rate stress tests, which also responded to regulatory clarification on affordability calculation rules, which means we can lend an average of 15% (or £37,000).
These changes are well known to those who are close to the details. But we know that not everyone knows exactly what these changes mean and the opportunities they bring to brokers, clients, and the market as a whole.
Now, brokers have the opportunity to educate their clients about possible possibilities and gradually grow their business. The fact that some of the brokers we talked about told us that clients are not asking about these changes, or what they might mean to them, makes these conversations even more important.
For example, some borrowers are unable to continue applying six to twelve months ago, perhaps because their income does not meet the criteria. There are also potential borrowers who haven’t even started looking for it because they don’t think they have a mortgage. It’s about creating a marketplace, not just replacing existing businesses (similar to what we’ve achieved with a £5,000 deposit mortgage), which depends on raising awareness – staying in touch with new customers and existing clients to help them understand what their new options are.
Another element is that brokers use their own marketing and their own channels to communicate information directly to their clients. For example, this could take the form of a webinar or newsletter, as well as representing a network of brokers and making the most of the events to discuss what this means for the market.
Lenders also have roles to play here – providing clarity with any changes made by the broker and what it means to the borrower. For example, we are looking at some concrete examples to bring it to life, including case studies and examples of the differences that these changes may have.
We admit that each lender will have its own approach and strategy – both the LTI ratio and their response to changes, which makes it more complicated (but essential) to keeping brokers up to date.
As for the market, all of this can only be regarded as good news for consumers. Lenders can offer borrowers more than they were a few weeks ago, which increases competition and offers more opportunities for borrowers to get the best deals for clients, which I believe will help stimulate demand – whether those who are already looking for, and those who don’t – and maybe it should do the same now. For everyone, developing the market is a win-win situation.
That said, we need to admit that borrowing rates are still expensive – especially on higher LTVs, so while these changes are great, there are still other obstacles for those looking to get into the real estate ladder and we can’t solve everything overnight.
However, LTI restricted review is something we have been running for business for a long time – and will enable us to support more borrowers – especially first-time home buyers.
Jeremy Duncombe is Managing Director of Accord Mortgage Committee
