Why lenders should adapt their criteria to fit the times

However, few of us will have had the type of ‘hangover’ mortgage lenders appear to have had when it comes to their policies towards new-build borrowers because this ‘fuzzy head’ and ‘fuzzy thinking’ appears to have begun in 2008 and is still apparently having a significant impact on them almost fourteen years on.

Just recently the ‘new’ Housing Secretary – amongst other responsibilities – Michael Gove suggested lenders were being over-cautious when it comes to certain borrower demographics, and you would have to put new-build firmly into this category.

How else might you explain a situation where lenders are willing to lend 95% LTV to new-build borrowers via the Help to Buy (HTB) Scheme, but should they have the temerity not to want to use this scheme, or if they have – heaven forbid – saved a 10% deposit, then they are effectively looking at the slimmest of pickings when it comes to access to mortgages.

Two of the very biggest mainstream lenders in this country, offer residential buyers access to 95% LTV loans with HTB, however at the same time, require a 25% deposit without it.

This bizarre situation was brought to light by a recent client of ours who came with a £40k deposit available wanting to buy a £400k new-build flat in London. You could count the number of lenders who would be willing to write this business on two fingers yet were he to halve his deposit and go with an HTB scheme property then the whole market would open up.

If you’re a landlord wanting to buy a new-build flat then the situation becomes even more bizarre. Again, some of the bigger lenders have a maximum 65% LTV for landlords; others will ‘stretch’ to 70%, which is still a 25 to 30% differential on what could be available on Help to Buy. Not that landlords have access to this of course.

Talking of landlords, can someone tell us why they appear to be discouraging financially-savvy, invested landlords in the type of property – new-builds – which is now perhaps the best investment they could be making? 65/75% LTV? This doesn’t make any sense.

Now, let’s get this straight, we fully understand why in the immediate period post-Credit Crunch, lenders were hesitant/ultra-cautious about lending on new-build. They had caught a cold/had their fingers burnt, and any other heat-related analogy you want to use, when it comes to new-build, particularly city centre flats.

But, almost 14 years on, in a completely different environment, to be somewhat desperately holding onto the same lending criteria for those who have strong deposits, and yet willing to lend with the backing of a Government scheme to those with less money to their name, seems utterly bizarre.

At the recent Budget, the Chancellor reiterated the Government’s desire to keep supporting first-time buyers, but there is clearly a disconnect between Government and what lenders are willing to do, particularly in an area like new-build which is a focal point for first-timers.

The caveats placed against new-build borrowing do not make sense in today’s market. Are lenders truly saying that new-builds are a riskier buy? These are not the days of new-builds dropping in value as soon as they are bought – again, far from it.

New-build properties hold their values for all manner of reasons, not least the fact they are ultra-energy efficient, have the highest EPC levels, save the homeowner money in energy costs, are better insulated, often have solar panels, etc. In an environment that cares about the environment, people are willing to pay for new-build because of all this and much more.

In other words, new-builds are not a risky lending option at all; in fact, you could justifiably argue that it is the ‘second-hand’ property market that presents the greater risk and lenders appear not to be putting the same restrictions on their criteria for these homes. We are not in the 1990s anymore where the Victorian semi was deemed to be the property to buy; that has shifted to new-build.

So, it is time for lenders to get their collective new-build heads out of the immediate period post-2008. We are a long way from this and new-build borrowers, specifically those who are not taking part in HTB, should not be discriminated against. Let’s see a focus on criteria to support those who have healthy deposits and, who along with the new-build property, is nowhere near the risk lenders appear to think they are.