The next big move – regulatory approval permitting – will perhaps be focused on whether lenders feel confident to offer a straight 100% product
Bob Hunt is chief executive of Paradigm Mortgage Services
Perhaps unsurprisingly Barclays foray into the world of 100% LTV mortgages has garnered much attention given that it is a major mainstream lender, it’s a highly competitive rate and it joins just a handful of similar products available in the market. The major question currently being asked is whether this heralds the return of a part of the market many thought had been completely wiped out by a combination of Credit Crunch fall-out and regulatory intervention?
I must admit to being rather surprised to see 100% mortgages back on the agenda given the noises coming out of the FCA and PRA, and the fact that various regulatory edicts do not make it easy for lenders to be active in this part of the market. Of course this is no ‘ordinary’ pre-Crunch 100% product – indeed, there isn’t one available in the entire market – and comes with various caveats around family guarantors and savings being placed on deposit for a minimum of three years, but one can’t help but think the regulator(s) will be watching this closely.
What perhaps this does remind us is that those ‘underserved borrowers’ – namely first-time buyers or simply those requiring high LTV products – remain just that and (up until now at least) lenders have not been willing, or perhaps able, to offer products that would cater for their needs far more explicitly. Instead, and I’m certainly not suggesting these are not worthwhile, lenders are more likely to have gone down the ‘family route’ providing products which in some way tap into the fact the Bank of Mum and Dad is now much more important than it ever was in helping first-timers get onto the ladder.
The next big move – regulatory approval permitting – will perhaps be focused on whether lenders feel confident to offer a straight 100% product with no additional requirements, apart from what would likely be one incredible strict affordability test to pass. Are we any closer to this in the marketplace? Well, we perhaps are certainly closer than we were just last month although one suspects we may see some more ‘me too’ mainstream options from the larger lenders in this vein first, rather than seeing a big leap into the non-guarantor/family deposit requirement 100% mortgage.
Again, the big focus here will be on the regulator and what it potentially perceives to be a bridge too far for the mortgage market. As mentioned above, at a time when we appear to have a regulatory environment which is far stricter in terms of what it might deem ‘riskier lending’ it is surprising to see an acceptance of these product offerings. One wonders what guarantees or understanding may have been given in terms of lending levels, not forgetting of course the capital requirements to lend in this part of the market.
One interesting signal that this product might just provide about the rest of 2016 is that it’s looking like we’ll see a major refocus on the mainstream, especially for those lenders who also have specialist lending operations. Undoubtedly, the first three months of the year belonged to buy-to-let, for obvious reasons, but if there is a drop-off in buy-to-let demand or attractiveness to the suppliers, perhaps lenders such as Barclays are showing their hands in terms of making a defined mark in the mainstream residential market, but in areas where there might be a larger margin to be achieved, such as 100% mortgages.
I certainly don’t buy the argument that buy-to-let is a dead duck – in fact far from it looking at our April results – but for those who do operate across both buy-to-let and mainstream there may be some stumbling blocks in the buy-to-let market (notably CP11/16 and Basel III requirements) which might well temper their ability to lend more. Thus, they may decide to look at other mainstream areas in order to potentially fill that gap. Whatever happens, I think we can all count on further announcements throughout the year as competitors looks to respond to what has been (for me at least) a surprise move by Barclays.
