First-time buyers, renters focus of push to provide 'biggest boost to affordable in a generation'
This article was provided by LendInvest Mortgages
Labour’s landslide victory over the Conservatives in the election has the UK eager to see how they will tackle the problems within the housing market – primarily focused on first-time buyers and renters.
The manifesto published by the Labour Party during the election campaign was brief, however, it had a clear motive – to provide the biggest boost to affordable housing in a generation.
What are Labour’s plans?
Keir Starmer’s intentions include supporting affordable housing for first-time buyers. To achieve the target of building one and a half million homes within the first five years of a Labour government, a comprehensive plan needs to be in place.
Labour has published plans to build on brownfield and the “grey belt” as a priority. Freeing up land for the development of infrastructure and housing.
How can lenders support Labour’s commitments?
The first step to support Labour’s commitments is to understand the borrower. In the last five years, first-time buyers have experienced financial shocks that pushed many to alternative ways of earning (second jobs, contractors), or even adverse credit.
What challenges do individual borrowers face, and how can you overcome that with product and criteria?
Let’s start with people with second jobs; what’s the barrier to a mortgage for this group?
Traditionally, lenders will only consider the borrower’s primary source of income, identifying this as the most “stable”. This impacts the amount they can borrow, alongside affordability calculations, despite the fact we, and they, may be able to see extra funds in the accounts.
Simple criteria changes, like allowing 100% of mixed-income when calculating affordability can open doors to many, while a simple and thorough underwrite to understand, and try to secure, long-term affordability for the customer, can help the case progress.
Individuals with zero-hour contracts or part-time employment face the same problems. The goal here isn’t to find a way to say no but to find a sustainable and appropriate way to say yes and offer acceptable opportunities.
Diving deep into analysis of the customer’s salary, and how it fluctuates, can give lenders the tools to properly estimate loan-to-income ratios in a way that’s beneficial to them and the borrowers.
The number of self-employed people in the UK has been steadily growing and they are now a significant part of the workforce. Many of those will express the difficulty they face in trying to get a mortgage for their home, despite evidence of sustainability by virtue of millions continuing to remain self-employed.
Of course, for the newly self-employed, lenders need to be cautious, but a year in self-employment is a positive middle ground to start offering the borrower mortgage opportunities, as well as an open approach to viewing their income history.
Finally, the impact of five years of an unstable economy has taken its toll on many with an increase of adverse credit in the UK. Lenders can potentially support these types of borrowers by offering the opportunity to perform a debt consolidation, where appropriate, and having a hands-on approach to underwriting.
Opportunities in place
Opportunities are in place to help the new government help achieve its goals and ambitions. As more and more first-time buyers enter the market over the next 4 years, it’s up to lenders to move to support them, rather than, say, to pull up a drawbridge and hide behind old-fashioned views of perceived risk.
When it is the right outcome for the borrower, it can be the right outcome for the lender as well.
*Labour plans as quoted at https://labour.org.uk/
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