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Back to back to the future

Over the last 15 years, the great lost opportunity has been on affordability.

The move to affordability is not complete, as the lack of transparency on how much an individual can borrow is emerging as a major difficulty. First-time-buyer attitudes are often informed by their parents’ experience. Lack of investment in marketing our ability to solve issues prevents a potential market finding us. Similar attitudes apply to 100 per cent loans. The differing affordability models in the market invalidate the sourcing systems on affordability.

This has the potential to lead to a conflict between compliance and best advice. Some networks insist that advice is supported by a sourcing system search. If the customer is stretching affordability, there is a risk that the sourcing system will not reveal the best product. Most brokers will use their experience to circumnavigate this but if the advice has to follow the sourcing recommendation, there is a possibility it will not be best advice.

How are lenders going to respond to the changing nature of the buy-to-let market? The BTL explosion has been fuelled by rampant property inflation. Now the outlook is more uncertain about prospective values. For the short term, only tax-based investment makes sense, with gross yields running below mortgage rates in some areas. This does not invalidate most lending criteria or investment decisions, provided a long-term view is taken. It is in reacting to events of the past that lenders are missing opportunities.

A major instance of this is lenders’ reluctance to allow back-to-back lending on the sale of off-plan properties on completion. Developers have been selling off-plan en bloc to institutional investors as well as private exponents. These deals complete when the property is completed. Back-to-back buyers are facing a restricted market for loans because lenders want to see a clear window between the two completions.

Many had their fingers burnt in Docklands by BTB sales which turned out to be value-inflating deals between connected parties. Many lenders will not countenance transactions between independent parties even if there is a genuine open market valuation and legal confirmation of the third-party nature of the transaction. This market is set to grow and many lenders will miss out by letting the historic actions of a small minority prevent sensible lending in the sector.

Mark Chilton is chief executive of Purely Mortgages

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