FINANCE

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THE SHARED OWNERSHIP MORTGAGE MARKET

IS IT NORMAL?

JON LORD, MD AT AWARD-WINNING SHARED OWNERSHIP MORTGAGE BROKER METRO FINANCE, EXPLAINS WHAT THE CURRENT MORTGAGE MARKET IS LIKE FOR FIRST TIME BUYERS

Every month at Metro around 2,400 eager buyers contact us for help with shared ownership

mortgages or simply to check what’s affordable.

Common questions right now are, “Is the mortgage market normal?” and “Can I still get a mortgage?” The short answer is yes and yes...

When you work with mortgage lenders for long enough, you tend to adapt a mindset the same as one – not in the sense of shouting “decline” when asked if you’d like a drink... but rather understanding and feeling what it is that works for them, at any given time, dependent on the economic climate. Which in turns, helps avoid the word “decline”.

So, what has changed over the last year, and is it really harder to get a mortgage?

Firstly, and probably most under the spotlight, is the issue of jobs and furlough – we need to understand that lenders are concerned about long term employment. So, while it might appear some lenders accept furlough income, the reality is you will need to be back in work at the point you require mortgage completion.

Still on

employment, lots of people rely on bonus pay or overtime to obtain the mortgage amount required. In plenty of instances neither of these have been paid for the past three months, hence can’t be used by the lender. In essence, some people might need to wait until that overtime or bonus builds again, now that lockdown is gradually ending. If you think about lenders as working from “real visible data”, they need to see and rely on that extra income over the last few months. Have interest rates risen? Not in the usual sense, Bank of England rate hasn’t changed. But mortgage fixed rates fluctuate all the time, in line with lender appetite in the moment. What

we’ve seen during the pandemic is a hike in mortgage rates as lenders try to control volume to maintain service levels. We can in some instances now see these starting to fall again as lenders compete with each other.

Are lenders rejecting more people

on credit scoring? This is a grey area that can easily mislead a reader when you see headlines. Imagine the mortgage adviser’s job is to target the right lender for the right applicant; most of the time the adviser should have a good idea whether or not a mortgage will be accepted – get the targeting wrong and more cases will be declined. The adviser’s job has become a little harder because lenders have made so many criteria tweaks. At Metro we haven’t seen a pattern of more declines when compared to pre-lockdown, suggesting it isn’t harder to get through a lender’s scoring system.

Deposit sizes for shared

ownership; we are all very much used to 5% of the share being the norm – and it still is! In the middle of the pandemic, we saw the low deposit market shrink dramatically, but that was just a temporary reaction of lenders entering the unknown. Thankfully, its roughly back to around 12-14 different lenders offering 95% lending for shared ownership, which is more than enough. Shortage of lenders? This is similar to above; mid-pandemic many lenders withdrew from lending or massively increased deposit sizes. I think it’s fair to say the open market was worse affected than shared ownership. Today we are broadly back to the same number as before, with more looking to enter. Speaking off the cuff, approximately 28 lenders serve shared ownership, from nearly all the high street lenders, through to local building societies.

A final point concerning the “dark art” of mortgage AIPs or DIPs as they are sometimes called – the initial mortgage approval. People often ask, “I’ve got a good credit score, all my credit is paid on time, I’m on the electoral roll, so why have I been declined by the lender?”

For a moment forget the fact you might have a 999 score – mortgage lenders tailor their systems and criteria to their individual risk requirements. So, for example, if you had three credit cards each with a £1,000 limit and the balances constantly revolved around £800 utlilised each month, some lenders would class this as high credit utlilisation, or in my language, “You’re maxing your cards all the time!” If the lender has a policy built into its scoring system of maximum utilisation of 35% of a card, then irrespective of your score, the AIP will fail.

So it’s not really much of a “dark art” at all, although these things sometimes aren’t perhaps promoted by lenders, so it’s back to the mortgage adviser to understand the lender as much as possible.

Rolling back to that initial question, “Is the mortgage market normal?” Answer – it’s like a river, constantly flowing and meandering... and rivers are normal! Yet to ride the river you have to understand the twists, turns and rapids.

metrofinance.co.uk