Buyers face six-month ‘use it or lose it’ rule for mortgages
:: Leading lender introduces a shorter time limit
A LEADING lender has reduced from 12 to six months the period that mortgage approvals in principle will stay in place.
Haven, which is the broker-focused part of EBS, said mortgage applications approved after this week would no longer be valid for a year. Other lenders are now expected to follow.
It comes as record numbers seek mortgage approval in a market with limited housing stock. A strong rise in pent-up demand is putting the squeeze on first-time buyers – with new house construction falling behind targets, due to lockdowns.
Property prices have started rising again after remaining stable for a number of months, despite predictions they would fall due to the impact of the pandemic.
All this means that six months may not be long enough for many first-time buyers to secure the property they want, at a price they can afford. Haven told brokers: “We are changing the length of time an approval in principle is valid from 12 months to six months.”
Karl Deeter of mortgage brokers Yes.ie predicted that more lenders would now adopt this ‘use it or lose it’ approach. “When one lender does something, the typical response is that others follow,” he said.
A LEADING lender has reduced to six months the period that mortgage approvals in principle will stay in place.
Haven, which is the broker-focused part of EBS, said mortgage applications approved after this week would no longer be valid for a year. Other lenders are now expected to follow.
It comes as record numbers seek mortgage approval in a market with limited housing stock.
A strong rise in pent-up demand is putting the squeeze on first-time buyers – with new house construction falling behind targets due to lockdowns.
And property prices have started rising again, after remaining stable for a number of months, despite predictions that they would fall due to the impact of the pandemic.
A survey this week found that the cost of property is the single biggest challenge facing potential buyers.
All this means that six months may not be long enough for many first-time buyers to secure the property they want, at a price they can afford.
Haven told brokers: “We are changing the length of time an approval in principle (AIP) is valid from 12 months to six months.”
Karl Deeter of mortgage brokers Yes.ie predicted that more lenders would now adopt this “use it or lose it” approach.
“When one lender does something, the typical response is that others follow,” he said.
Most lenders currently allow borrowers to keep their mortgage approval in place for a year.
But difficulties working out the expected number of approvals that would end up being mortgage drawdowns, and managing exemptions for a limited number of borrowers, was proving a headache for lenders, Mr Deeter said.
Banks are allowed to issue a set amount of mortgage exceptions to Central Bank lending rules every year.
Borrowers typically get approval, sometimes with an exemption, from a number of lenders as they attempt to secure a purchase.
This is because one lender may offer slightly different terms to another.
This makes it hard for lenders to work out what their expected level of lending will be in a given year.
Mr Deeter said: “Some borrowers may feel upset by this, but the industry has a responsibility to be fit for purpose and if people are sitting on approvals that don’t get used, and other borrowers are effectively being locked out, then you can see the reasoning behind it.”
He said that lenders wanted to offer exemptions but they often found people did not take them up.
“We understand that exemptions are a limit, not a target, but with mortgages being so sought-after banks are eager to manage a limited offering as best they can,” Mr Deeter said.
Applications for mortgage exceptions are expected to surge to record levels this year as lenders respond to pent-up demand from borrowers.
Exemptions to the strict Central Bank lending rules were paused for much of last year, due to the uncertainty in the mortgage market brought on by the Covid-19 pandemic.
The exemptions allow banks to lend more than three-and-ahalf times a person’s income, or to allow second or subsequent buyers to buy a home with a deposit that is less than 20pc of the purchase price.
Getting an exemption is popular for those seeking to buy more expensive urban homes, where prices often exceed income limits.
Mortgage approvals hit record high levels in November, up 24pc on the same month a year earlier, as applicants who had delayed decisions about buying houses entered the market.
This is expected to have a follow-on effect on the exceptions market, which reopened this month.