News | Published January 22 2020

Mortgage brokers like Cherry Mortgage and Finance to monitor housing affordability post-Brexit

One – possibly unexpected - effect that a large Conservative majority seems to be having is in making housing more affordable for people across the UK. A recent story covered by the Telegraph highlighted how, post-election the housing market has responded.

The metrics, taken from Zoopla where they ranked Britain's 374 local authorities using a combined metric of price growth, affordability and time taken to sell.

The Telegraph reports:

“The East Midlands has six local authorities in the top 20, the highest proportion of any region, while the North West and West Midlands each have four. London is nowhere to be seen. The capital has priced itself out of its own market.

“Affordability in London (a ratio of house prices to wages) has improved by 10pc in the last three years, says Mr Donnell, but is that enough to loosen up the market? Certainly not yet. Here are the top five places where you should be buying instead in 2020.”

While the issue of affordable housing is not solved, this trend should be welcome news for mortgage providers such as Cherry Mortgage & Finance – a specialist independent mortgage brokers based in Dorset. Speaking to The Parliamentary Review about the affordability of housing, director Matthew Fleming-Duffy said,

“I guess my biggest issue is with the way affordability models currently work. When I started working in the mortgage industry, some 25 years ago, the income multiple used by most lenders was three and a half times your annual salary. Following intervention from the Bank of England, in 2014, the limit most lenders seem to have adopted on income multiples is four and a half times your annual salary – representing an increase of 28 per cent. Using house price data from Nationwide Building Society, the average house price in the first quarter of 1993 was £50,218, whereas in the first quarter of 2018 it stands at £211,792 – an increase of over 420 per cent."

Reflecting on this, Fleming-Duffy went on to say,

“Something is wrong. Mortgage lenders, quite rightly, request far more information to assess a mortgage application these days; their lending practices, however, are heavily restricted based on these figures. I am not suggesting, in any way, that we revert to a form of self-declaration of affordability – a mortgage is, for most consumers, the largest loan they will every take. Many consumers feel inclined to overstate their financial position to obtain the result they want; I read, with a profound sense of irony, that Lynda Blackwell, the ex-FCA mortgage sector manager, recently complained on Radio 4 that she was refused a mortgage due to lack of income evidence. Her own paper on responsible lending, produced in 2010, effectively banned self-certification mortgages where income is not evidenced.

“It is also worth noting that the rules issued by the Bank of England allowed lenders to provide mortgages based on higher multiples of income for up to 15 per cent of their new loans, many of which appear to be exclusively reserved for high net worth individuals.”

When pressed on the solution, Fleming-Duffy expanded,

“So how should we assess affordability? In my opinion, some lenders could take more time to understand a client’s personal circumstances and requirements, perhaps taking their current ability to pay rent and other lifestyle costs into consideration. Old-fashioned, manual underwriting standards are upheld by many of the smaller building societies, and this is what is needed to allow better access to mortgage funding. 

"Access to larger mortgage loans allows aspirational consumers to purchase often first or larger homes, provides confidence to builders that they will be able to sell new homes once they are built and would generally seek to rebalance the access to property finance. I want a world that works for everyone, and this would be a small step towards achieving that.”

If it is true that housing is becoming more affordable nationwide, then post-Brexit Britain should provide ample opportunity for government to work with housing providers, mortgage brokers and lenders to improve the situation for both the general public and companies involved.

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Authored by

The Parliamentary Review

January 22 2020

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