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Non standard UK home borrowers face lack of clarity on mortgages
Fears of a future clampdown by regulators are preventing mortgage lenders from offering loans that stretch into people’s retirement, according to a new report. The report from the Intermediary Mortgage Lenders Association examines the impact of post financial crisis mortgage regulation on the growing army of ‘non-standard’ customers who fall outside the traditional core of salaried borrowers with no credit blemishes who can pay off their loans before a set retirement date. IMLA argues that people seeking a loan which is likely to remain outstanding beyond their normal retirement age are suffering from a lack of clarity in the Mortgage Market Review (MMR) rules, which is resulting in older borrowers being frozen out. Most private sector employees now hold defined contribution (DC) pensions, which often prevent accurate predictions of their pension income making it hard for lenders to determine how affordable a loan may prove beyond the point of retirement. With the MMR requiring lenders to ensure mortgages are affordable for the lifetime of the loan in order to ‘protect borrowers from themselves’, the scope for interpretation has convinced many lenders that lending into retirement now carries extra risk if borrowers find at a later date that their retirement income disappoints. In response, many mortgage lenders have imposed lower maximum age limits rather than risk future accusations of breaching the rules where customers’ pensions prove insufficient to keep up their mortgage repayments after they retire. With house prices rising faster than incomes, many borrowers are not managing to purchase an appropriate family home until their forties or even fifties. But anyone over the age of 40 is seeking a loan with a standard term of 25 years will be borrowing beyond a normal retirement age of 65 and is liable to find their options restricted. IMLA argues the upcoming thematic review of the MMR by the Financial Conduct Authority, which is set to examine responsible lending in the first half of 2015, must provide extra clarity so that lenders can offer the flexibility required to meet borrowers’ changing needs without fear of future censure. ‘This issue goes beyond the transitional arrangements for existing borrowers, and means that efforts by the lending community to follow the spirit of MMR with new customers are being hampered by the very real concern that it may be cited against them in future,’ said Peter Williams, executive director of the IMLA. ‘Uncertain pension incomes make it difficult for lenders to assess mortgage affordability in later life, and this may become even harder when the new pension freedoms take effect next year. To avoid a situation where regulation brings about the extinction of mortgage terms that stretch into retirement, we need clarity and confirmation about where the boundaries of responsible lending truly lie,’ he explained. ‘MMR has been a big step forwards but having put a strong framework in place for the future, attention must now… Continue reading
Gazumping is back in the UK with buyers in Brighton most affected
Brighton leads the way as the gazumping capital of Britain with 34.9% of residents losing out in this way, new research has found. As if getting a foot on the property ladder wasn’t already hard enough for some, the danger of being gazumped is now becoming a reality again for property buyers, according to a study by online estate agent eMoov. It found that on average across the UK some 22% have experienced the turmoil of being gazumped which can leave prospective buyers out of pocket and back to square one in the buying process. In the London market gazumping is over the national average with 31.9% in the capital have come within touching distance of a purchase before it was snatched from their grasp. The tactic of sealed bidding, particularly rife in the capital, provides the ideal environment for potential gazumpers. Outside of the South East the average drops from 22% to 18%. Birmingham figures show 27% of property buyers in the area have been gazumped with Sheffield at 22%, Bristol at 21%, Leeds and Nottingham at 20%. Although gazumping is not a new concept it has become a more regular occurrence across the country. The research also found that the higher the price of the property, the more likely you are to be gazumped. Of those that had been previously gazumped 27% were over properties of £500,000 or above. This dropped to 25% for properties valued between £200,000 and £500,000 and a further 6% for properties under £200,000. ‘It is one of those things in the current structure of property purchasing unfortunately. Buyers that have displayed honest interest in a property only to be let down by owners with pound signs in their eyes, often encouraged by traditional estate agent looking to increase his fee percentage,’ said Russell Quirk, the firm’s chief executive officer. Liverpool was the least affected area of England for gazumping at just 13%, however this doesn’t necessarily put an end to unethical behaviour during the buying process. ‘If these markets cool off too much, we could see gazundering coming back in. This is a tactic in areas with little demand where the buyer calls up just before the exchange of contracts and demands to pay less,’ explained Quirk. Continue reading
Home building reaches a new high in Australia
This year has seen a record number of new homes being built in Australia, according to the latest outlook report from the Housing Industry Association. However, the growth in new residential construction has been slower to gather momentum and breadth in terms of both geographical location and dwelling type, it says. According to HIA chief economist, Dr Harley Dale, this means that the ‘look and feel’ of this building cycle is different to historical experience. ‘In aggregate, we will commence nearly 190,000 new dwellings in 2014, surpassing the previous record of 187,000 back in 1994,’ said Dale. ‘The momentum culminating in this milestone has provided a substantial boost to Australia’s economy at a crucial juncture in the cycle. Below trend economic growth and weak labour market outcomes would be considerably worse without the reach a new home building recovery is exerting into the broader economy,’ he explained. He pointed out that against this backdrop the HIA believes it is unfortunate that policy makers have failed to grasp the reform initiative required to compliment record low borrowing costs and send new home building levels higher still in 2015 and 2016. ‘Australia’s economic growth and labour market performance will be weaker than otherwise as a consequence of this lack of policy action. Record low borrowing costs have combined with other factors such as high net overseas migration to unleash substantial pent-up demand for new housing,’ said Dale. ‘These factors will keep the level of new homes commenced at historically elevated levels. However, what the economy needs is further growth in new home building over the next couple of years, but that will only occur as a consequence of taxation and regulatory reform,’ he pointed out. ‘It is still an impressive achievement to build a record number of new homes, at a level that approaches what the average build rate will have to be if we are to adequately house our growing and ageing population in coming decades,’ he said. He explained that renovations investment has not joined the new housing ride this cycle, increasing by only 0.3% in 2013/2014 from a decade low. ‘Unemployment concerns, a lack of available credit, and an elevated household savings rate are but three elements in the current environment which mean there has not been room for a renovations recovery alongside new home building activity and existing property price growth,’ said Dale. But he pointed out that that situation looks to be slowly changing as growth of 0.9% in renovations investment in 2014/2015 is forecast to accelerate to 2% growth in the subsequent three years. ‘That would be a great outcome, but it is a long road back for this important sector of Australia’s domestic economy,’ Dale concluded. Continue reading
