MBT Affordability Insights: A more interesting and divergent affordability market

The first thing to note is that lenders are currently battling on interest rate, with many chasing the bottom and the re-emergence of sub 1% rates at low LTVs. This is clearly not a sustainable approach and so we can expect affordability to play an increasingly important way for lenders to stand out from the competition in the coming months.

With furlough winding down, furlough income is becoming less of an issue and we are seeing the return of lenders accepting variable income, although it is still being treated with caution by some lenders.

The self-employed is another area that lenders are continuing to treat with caution and many large lenders are still restricting LTV and LTI – in fact the latest Affordability Index has shown that the average maximum and minimum loans offered to self-employed applicants have dipped to their lowest levels for months.

It will be interesting to see how this pans out, particularly as so many people have set up on their own during the pandemic and we can expect to see a large number of clients who will only have one year’s accounts.

In addition, it will be interesting to see how lenders respond to the growing popularity of fixed term employment contracts, which are now particularly common in medical and education professions. There is already a huge range in how lenders treat CIS contractors from an affordability perspective and we are seeing lenders take different approached to IR35 – although umbrella companies are being used in the majority of these cases.

Elsewhere, more lenders are happy to enhance affordability for ‘professional’ applicants who are either recently qualified or soon to be qualified, and this could be an increasingly competitive area. Many lenders are also using five-year fixed rates as an easy way of enhancing their affordability offering and there’s a growing number of innovative 'shared equity' schemes that can provide up to 6x income for the right client.

These are just some of the current affordability trends and we think the market will develop further in the coming months – especially against a backdrop of ever-increasing house prices which are putting pressure on all homebuyer – not just first-time buyers. As the affordability landscape becomes more interesting and divergent, it will put even greater emphasis on brokers carrying out comprehensive affordability research – and that means partnering with the right technology provider.