Challenger banks reduce credit requirements and make it easier for first-time buyers to get a mortgage
Lenders are making it easier to get a mortgage, with a number relaxing restrictions on loan size and credit standards in the past week.
Virgin Money made a number of adjustments to its lending criteria, including dropping previous restrictions on lending to borrowers who have had County Court Judgements against them.
TSB meanwhile has increased its income multiple from four and a half times salary to four and three quarter times for first-time buyers and homemovers earning £40,000 a year or more.
Virgin Money will consider mortgage candidates who have repaid CCJ debts of up to £500
Virgin Money is now willing to consider mortgage candidates who have repaid CCJ debts of up to £500 and from candidates with repaid defaults of up to £2,000.
A statement from Virgin Money said: ‘Previously Virgin Money did not accept applications with any CCJs.
Virgin Money: What they won’t accept
The mortgage application will be declined in the following circumstances:
Arrears are recurring or likely to recur
Any unsatisfied CCJ, or CCJs totalling more than £500, either declared or detected, even if they are satisfied
If insolvency e.g. Bankruptcy, Sequestration or an IVA is identified or pending
Any default between £500 and £2,000 which is not satisfied and / or is less than 3 years old
Defaults totaling more than £2,000
‘From 11 March, we will accept satisfied CCJs totalling a maximum of £500.
‘Cases will be declined if there are any unsatisfied CCJs, or CCJs totalling more than £500, even if they are satisfied.
‘We review lending policy regularly and the change was made to bring it more in line with other lenders in the market.’
Chris Sykes, of mortgage broker firm Private Finance, said: ‘Virgin Money has made a number of adjustments to its policy surrounding adverse credit; especially those with a financial history chequered by defaults.
‘Innovations such as this are likely to provide individuals that may have experienced significant money troubles in the past, providing individuals considered “riskier” with vital access to credit lines when previously they might have had very few.’
TSB makes it easier for first-time buyers to borrow
As well as allowing borrowers with small deposits to borrow more in relation to their salary, TSB also raised its maximum mortgage amount to £500,000 for buyers with between a five and 10 per cent deposit.
They can choose from a two-year fix at 2.79 per cent, a three-year fix at 3.24 per cent, and a five-year fix at 3.29 per cent. Those looking to remortgage won’t qualify.
Nick Smith, TSB head of mortgages, said: ‘Increasing our loan-to-income cap and maximum loan size on selected products is about being able to give customers more flexibility on their borrowing needs whilst still meeting our affordability criteria.’
Why are lenders relaxing criteria?
Two reasons – first, competition in the mortgage market is fierce. There is a lot of money chasing not a lot of business.
House purchase activity has nose-dived this year with the latest figures from the Royal Institute of Chartered Surveyors showing new buyer enquiries fell again in January, marking the sixth successive monthly decline.
Alongside weakening demand, the number of new properties being listed on the sales market also deteriorated, with the net balance reading of -25 per cent the weakest since July 2016.
Mortgage rates meanwhile are lower than ever. Moneyfacts figures show the average two-year fixed rate home loan has fallen from 4.79 per cent in March 2009 to 2.49 per cent today. The average five-year fix has dropped by 2.73 percentage points.
The Bank of England base rate meanwhile has risen from 0.5 per cent in March 2009 to 0.75 per cent today.
Borrowers may be pleased with the latest moves to attract their custom, but they come just days after specialist lender Magellan Homeloans pulled out of the market completely, citing competitive pressures.
Magellan offered mortgages to borrowers with poor credit histories and in a statement released last week said: ‘In response to competitive pressures the business has recently seen a number of lenders reducing mortgage loan interest rates and increasing credit risk despite increased funding costs.
‘Viewing this as unsustainable Magellan has reluctantly taken this decision.’
It was the fourth specialist lender to shut up shop in three months, following the closures of buy-to-let specialist Fleet Mortgages, Secure Trust Bank and Amicus.
Lynda Blackwell, formerly mortgage sector manager at the Financial Conduct Authority and now a consultant, said: ‘Higher funding costs in the wholesale markets is putting pressure on already thin profit margins.
‘With consumer confidence falling, rumours of a recession and house prices under pressure, it’s a brave originator who will looking to acquire mortgages other than low loan-to-value prime.
‘We’re starting to see the impact of all of this with firms halting lending and even exiting the market.’