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Fear and lending

Are lenders in danger of becoming too cautious? Despite the Bank of England’s £50bn rescue package, we have seen further evidence of lenders tightening criteria by cutting maximum loan to values (Abbey and Nationwide), introducing higher rates for those borrowing more than 75 per cent LTV (Alliance & Leicester) and hiking rates (too many lenders to mention by name).

Lenders are increasingly adopting a one-size-fits-all approach by lumping together all borrowers regardless of circumstances. They need to stop being so cautious and start lending again. Take new build, for example. Lenders have been regarding this sector with increasing suspicion and reducing their exposure, yet the sector is far more diverse than this approach would have us believe.

Not all developments are heavily discounted to encourage purchasers. Some are full price and still oversubscribed because they are highly desirable. It is not helpful if a developer is selling eight mews houses for £950,000 each, with no incentives or discounts, and the surveyor values them at £750,000, even though three of them have already sold at £950,000, because he believes that gifted deposits exist on all new-build homes.

There needs to be more understanding of the market. Many people who buy new-build homes are genuine owner-occupiers who could just as well be buying a Victorian conversion. They should not be penalised because of problems of oversupply and lack of transparency elsewhere.

The situation is similar with buy to let. Stiffer rental criteria mean that landlords coming up to remortgage are finding they no longer fit. This potentially means paying a retention rate of around 2 per cent over bank base rate or moving on to the standard variable rate. It does not need to be this way. The landlord coming up to remortgage presents a far lower risk than the landlord buying a property for the first time. The reasonable lender would take into account that the property has been let for a couple of years at least, that the rental income is strong and the borrower has a track record of paying the mortgage.

This new caution is a huge step back to the days when applications were not considered on a case-by-case basis and flexibility had not arrived in the sector. Brokers must engage with lenders who they recognise as keen to take advantage of the undoubted opportunities that exist in this more challenging marketplace. There is good quality business out there but unless we have access to the necessary products, lenders will not see any of it.

Mark Harris is managing director of Savills Private Finance


Listen and learn

The FSA has clearly moved on. Its interim RDR report notes that “the market called for a simpler marketplace and a clear separation between advice and sales”.

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