"Brokers will know only too well that the type of property being purchased can have a significant impact on the deposits required, and therefore the prospects for their clients."
First-time buyers are in a slightly more comfortable position today than they were a year ago. Recent analysis from Rightmove found that falling rates mean that a first-time buyer purchasing now will pay around £150 a month less on their mortgage than they would have done at the peak last year. That number is only likely to have increased given recent rate cuts by a swathe of lenders, including Atom bank.
That’s really encouraging movement, and this is reflected in the higher activity levels that we are seeing in the market generally.
Yet it’s not just the rates themselves that will ultimately make the difference for aspiring homeowners. Lenders also need to rethink their criteria, to ensure it really is sufficiently flexible and supportive for those planning their first purchase.
Making money go further
One of the principal challenges prospective buyers face is the loan-to-income (LTI) cap. These limits can put the brakes on a potential purchase, holding back the sums the borrower can obtain to put towards a deal.
Obviously it’s vital that lenders do their due diligence, and make sure that only affordable sums are offered to applicants. But there are times when borrowers are being prevented from getting the mortgage finance they could comfortably repay on account of those caps.
It’s something we have looked to address with our recent changes to our LTI criteria. For applicants with an annual income in excess of £75,000, Atom Bank will offer up to six times their income when borrowing at 90% or less, which is more than most other lenders out there. And if the borrower is looking for a higher LTV, they can borrow up to 5.5 times their income.
We feel this strikes the right balance, giving that extra helping hand to those who enjoy sufficiently high salaries, while remaining responsible in our lending.
The right LTV for the right property
Another problematic trend for some borrowers has been around the LTV caps enforced on certain properties. Brokers will know only too well that the type of property being purchased can have a significant impact on the deposits required, and therefore the prospects for their clients.
This is particularly true for those looking to purchase new-build flats and houses, and again it’s an area where we believe some flexibility can prove effective.
That’s why we have increased the maximum LTVs available for specific property types for those looking to buy in London and the South East, areas where properties are more expensive and that LTV really makes a significant difference.
The fact is that price growth in these regions has pushed them to prices that are going to be a stretch without a more understanding approach from lenders.
As a result, Atom Bank has increased the maximum LTVs for new-build flats from 80% to 90%, while for existing flats and new-build houses the maximum has been increased from 90% to 95%.
It’s a move that should provide a boost to those buyers who might otherwise have to turn to family help, while also opening up the potential of a purchase for those who don’t have the luxury of a gifted deposit.
Embracing the next generation of buyers
There has been a lot of encouraging talk about housing of late. The new government has been open about its intentions to scale up housebuilding, an ambition that most of us in this industry wholeheartedly share.
House building has limped along at an uninspiring pace for so long that it’s no huge shock that house prices have continued to grow, even when seismic shocks like the pandemic and mini-Budget emerge.
That ambition is welcome, but the truth is that it will take some time before we see the results of any changes to the planning system, and - hopefully - the emergence of more affordable housing. In the meantime, as a lending industry we need to continue to find ways to support those property owners of the future, the first and second time buyers.
It will take some innovation and flexible thinking, some creativity in pinpointing not only the particular subsets that are being underserved but how that can be addressed responsibly.
Atom Bank is determined to do just that, and will continue working closely with our broker partners to identify how products and criteria can be adapted to support these buyers in achieving their homebuying aspirations.
