After the banking collapses that have occurred over the last few years, any mention of innovation from lenders has automatically been linked with increased risk. However, slowly innovation is creeping back into the market with lenders focussing on being smarter not riskier.
The main issues for borrowers with regards to buying are that they are deposit constrained, and additionally in many areas of the county they are finding it difficult to persuade lenders to increase income multiples. So even having a good deposit does not guarantee that enough can be borrowed to purchase a house.
This has been unfortunate as many potential borrowers are being told they cannot afford the mortgage they want, when they are already paying a much larger monthly amount to rent a property. I think this is because until recently lenders have had little money to lend, and now they have more capital available, in most cases they have failed to innovate to satisfy borrower’s requirements. However, some lenders have realised that with interest rates at record low levels, they can, in some cases, push the boat out. The Clydesdale Bank who won The Money Wise innovator of the year award has introduced a low start mortgage. This comprises of a competitive 3 year fixed rate starting as low as 2.89%, but unusually during this time only interest needs to be paid. After 3 years the mortgage reverts to a traditional capital and interest mortgage. The benefits of this product are that it can make life a lot easier for first time buyers with the saving they make on payments in the first 3 years. This can be as much as £228 on a £100,000 mortgage charged at 2.89% over 25 years, but they must remember that payments will pick up significantly after 3 years. This product is best suited for borrowers who may be income strapped now, but because of progression in their career project, income will be higher after 3 years, making repayments more easily affordable then. Alternatively this product could also suit borrowers who have commitments in the way of loans that fall away in 3 years, making the repayment mortgage easier to manage when these debts are repaid.
Perhaps the most outstanding of the new product launches comes from the Coventry, their Step Up Plan allows borrowers to borrow 7 times their income with parents or family members joining onto the mortgage but not having to be guarantors. This product is not just a first time buyer deal; it can also be used for people needing to buy a new property following divorce or separation and has a range of competitive rates.
To sum up, I believe that lenders are stirring and although criteria for the above mortgages will not be that easy to meet, at least it shows that along with The Leeds Building Society who has reintroduced 95% mortgages, lenders can be innovative without taking the risks that cause them so many problems in the past. Hopefully this new type of lending will turn out to be smarter not riskier.
Kieron Bassett Financial Services has two Independent Financial Advisers who specialise in mortgages and investment advice. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Kieron Bassett DipPFS
8th July 2013
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