Mortgage lenders loosen tests in bid for borrowers

Major banks and building societies are making it easier for customers to take out a home loan, discovers Adam Williams

Some of Britain’s major banks and building societies are loosening their mortgage affordability restrictions in a bid to boost lending. Many would-be homeowners have struggled to obtain loans because of strict affordability assessments introduced in April 2014. In some cases applicants have been penalised for having adult children living at home, even if they are financially independent from their parents.

However, data published by trade body UK Finance showed that the number of new house buyers had been stagnant, meaning lenders are being forced to open up if they are to attract customers.

Coventry Building Society, Britain’s second largest, said it had changed its affordability model to make it more favourable for borrowers. It will now let applicants include welfare payments such as child benefit as part of their income, for example, and will no longer penalise borrowers for having adult children living at home.

It has also excluded some items from its list of “essential living costs” that are counted as expenditure in its affordability assessment. Coventry said these changes would particularly benefit those with salaries of up to £70,000.

High street banks such as Santander and Virgin Money have also removed restrictions from their lending policies. Virgin Money has made it easier for those with higher incomes to borrow more money while Santander will let customers borrow greater sums when purchasing newbuild flats.

Meanwhile, Skipton Building Society will now accept applications from self-employed contractors – another sign of lenders opening up.

Mark Dyason, of brokers Edinburgh Mortgage Advice, said banks had not applied mortgage rules uniformly. Those that had interpreted new rules in the strictest possible fashion were now loosening their stance.

“When new rules came in, such as affordability calculations, every bank was cautious about what they said yes to. They felt they needed to be as safe as possible to avoid getting into trouble with the regulator,” Mr Dyason said.

“But lenders that were less forgiving have now opened up, as their tough stances have been costing them business and they are trying to hit lending targets.”

The Bank of England recently noted that the appetite for risk among banks had continued to increase in recent years as demand from customers remained weak.

Mortgage broker Shaun Church, of Private Finance, said this was a positive move for borrowers.

“Quirks in lending criteria, which can be a source of frustration for many borrowers, are also being ironed out,” he said. “Parents of ‘ boomerang’ children are no longer penalised for welcoming financially independent children back into the family home, while some lenders are now taking into account child benefit in their affordability assessments.

“Lenders are looking to win new business, but the real winners of this relaxation will be the borrowers.”

David Hollingworth, of mortgage brokers London & Country, said first-time buyers were among those to benefit from these changes.

He said Tesco Bank had changed its policy and would now offer loans to customers with a 5pc deposit. Accord, part of Yorkshire Building Society, and Virgin Money have also made improvements to their range of 5pc deposit loans.

Mr Hollingworth said lenders were looking at ways to boost lending without cutting interest rates, which are still at historically low levels, any further.

“There are two levers lenders can pull when they are looking for new business – price and criteria,” he said. “But the competition is so strong on price that lenders have no margin to play with.

“They are having to look at other ways to improve their proposition.”

Despite mortgage lenders looking to increase lending, many borrowers remain on standard variable rates (SVRs) and are paying more than necessary. Research by Legal & General, the insurer, found that borrowers could already make large savings by switching from poor-value SVRs.

A customer with a £150,000 outstanding loan would save £188 a month by switching from a typical SVR to one of the cheapest two-year fixed rates in the market.

Even those with more complicated finances, such as the self-employed, could benefit from remortgaging, particularly if criteria improvements made it easier for them to get access to finance.

Kevin Roberts of Legal & General How to boost your mortgage odds

Save a large lenders to submit deposit: details of their mortgage lenders earnings for the offer the lowest past two years. rates to those with bigger deposits.

Avoid unusual properties:

high street banks are unlikely to lend on non-standard homes; bear this in mind when viewing.

Ensure your accounts are up to date: self-employed workers will be required by

Pay off debts:

this will demonstrate that a mortgage applicant is reliable and can meet regular payments.

Talk to a mortgage broker:

borrowers with complex finances may need advice on finding the right deal for their situation.

said: “Not all customers fit the traditional ‘vanilla’ profile. Selfemployed workers, contractors and directors of small businesses usually struggle to secure mortgages due to the more complex nature of their income streams. As lending attitudes change, those who may have otherwise been unable to secure an affordable mortgage in the past now have a fair chance of stepping on to the property ladder.

“With rates still close to their historic lows and unlikely to improve further, now is a great time for all borrowers to secure a fixed-rate deal on their mortgage.” Older borrowers are to be handed a financial lifeline as major mortgage lenders plan to offer help to those struggling with interest-only loans.

The Financial Conduct Authority, the City watchdog, gave lenders permission to offer retirement interest-only (Rio) loans to customers who would otherwise struggle to get finance because of their age.

Unlike other mortgages targeted at older people, Rio loans do not have an upper age limit. This means the borrower does not need to have any form of repayment plan set up alongside the mortgage; the property is simply sold when they die or move into long-term care. Interest payments are funded by pensions or other income.

At present the number of providers offering Rio loans is small, but several more have confirmed plans to offer such mortgages.

Britain’s biggest building society, Nationwide, intends to launch a Rio mortgage later this year, while three other large mutuals – Leeds, Nottingham and West Bromwich – confirmed to Telegraph Money that they would also enter the market.

Insurance giant Legal & General said it expected to launch a Rio mortgage in 2019.

‘Those who would have been unable to secure a mortgage now have a chance’

Many would-be homeowners have found it hard to pass banks’ affordability tests