View more on these topics

Is the tide turning on lending criteria post-MMR?

Brokers say the UK’s biggest mortgage lenders have been caught off guard by smaller rivals which are relaxing lending criteria and winning market share as a result.

The big names are now fighting back by entering into parts of the market such as interest-only and high loan-to-value lending that were previously seen as too risky and off limits.

So, after almost 18 months of restricted lending under the Mortgage Market Review, is the tide finally beginning to turn on criteria?

Losing out

Chadney Bulgin mortgage partner Jonathan Clark says smaller mutuals have been leading the charge when it comes to launching innovative deals.

He says: “The big lenders have lost out to the smaller building societies on the most competitive products on the market. They got caught with their trousers down by building societies that were moving much quicker.

“Competing on rates is all very well, but it’s the criteria where lenders are really starting to set themselves apart.”

Clark’s comments appear to be borne out by lending figures. Half-year results from Royal Bank of Scotland, Lloyds Banking Group and Santander show all three banks posted year-on-year lending declines, with RBS down 7.1 per cent, Santander down 7 per cent and Lloyds down a massive 19.1 per cent.

Meanwhile, over the same per-iod, Virgin Money saw year-on-year lending boosted by 44 per cent, Skipton was up 31 per cent, Coventry was up 25 per cent and Paragon saw an increase of 98 per cent.

At the time brokers attributed this to smaller lenders being more nimble in adapting their criteria, particularly in interest-only lending, and deals for the self-employed and older borrowers.

It seems bigger lenders are now looking to redress the balance. Over the last month we have seen Nationwide earmark £1bn for its first range of standard 95 per cent LTV deals, followed by Santander announcing plans for its own 95 per cent LTV range outside Help to Buy.

NatWest Intermediary Solutions has also re-entered the interest-only market for those with an “acceptable” repayment strategy at up to 75 per cent LTV.

Personal Touch Financial Services sales and marketing director David Carrington says: “What’s happening could be fairly described as a sea change.

“Previously, criteria has been very tight so we are starting to see a more pragmatic approach from the larger lenders. It’s a natural process post-MMR, with lenders starting to realise where their risk appetite really sits.

“The larger lenders are taking what were specialisms or niche markets and trying to make them mainstream. It’s very encouraging that the high-street lenders are offering customers more choice.”

But Trinity Financial products and communications manager Aaron Strutt points out while all the recent activity around criteria changes is positive, this does not necessarily mark a return to the more irresponsible lending that was prevalent in the past.

He says: “It’s almost as if some of the mortgages from the boom times are coming back, but in some cases the acceptance criteria can be tougher.

“The deals are out there, but generally they are going to be harder to qualify for than they used to be. Take NatWest, for example, they have come back into interest-only, but state that borrowers must earn at least £100,000 to qualify.

“The building societies have ten-ded to be a bit more flexible on their lending criteria, particularly for borrowers who have a bigger deposit. But you will still need to tick all  their boxes.”

Survival of the fittest

But if larger lenders are starting to muscle in on more specialist areas of lending, where does this leave the smaller players?

Carrington believes the market is big enough for everyone as long as mutuals and specialists continue to carve out parts of the market for themselves.

He says: “Clearly smaller lenders can’t compete across the board on the same scale as the likes of Santander or Nationwide. But as long as they maintain a clear niche they are good at they will survive alongside the big boys.”

Yet Clark argues mutuals still have the competitive edge when it comes to criteria.

He says: “Smaller building societies are a bit leaner and quicker to move because they are not constrained by having to pay dividends to shareholders. I don’t see that changing.

“The building societies have done a really good job in adjusting their criteria, and some of the banks are going to have to chase pretty hard just to keep up with them.”



NatWest to re-enter interest-only market

NatWest Intermediary Solutions has confirmed it will re-enter the interest-only market. To qualify, borrowers must earn at least £100,000, excluding discretionary bonuses and have an “acceptable” repayment strategy. The maximum LTV is 75 per cent. Borrowers cannot take out an interest-only loan if they plan to repay it within three years, if they want to […]


Santander to launch 95% LTV range outside of H2B

Santander is set to launch a range of 95 per cent LTV mortgages without the assistance of the Government’s Help to Buy mortgage guarantee scheme. Help to Buy 2 is set to finish in 2016, although Santander has confirmed it will continue to lend at this level beyond the life of the scheme. Santander managing […]


Gross lending reaches 7-year high

Gross lending reached a seven-year high in July, according to the Council of Mortgage Lenders. Lenders advanced an estimated £22bn last month – 14 per cent higher than the £19.4bn advanced in July 2014 and 9 per cent higher than the £20.1bn advanced in June. CML economist Mohammad Jamei says: “At £22bn, our estimate of […]

Lloyds’ mortgage lending dives 19%

Lloyds Banking Group lent 19.1 per cent less to mortgage borrowers in the first half of the year than it did in the first half of 2014. Its half-year report, published today, shows the group lent £16bn to borrowers in the first six months of the year, down from £19.8bn in the same period last […]

Retirement fund - thumbnail

What price (more) freedoms?

George Osborne will make his last Budget speech of the current parliamentary term this week, and the early media briefings suggest that pensions will again feature heavily in that statement. So what are we able to learn from the weekend’s coverage?


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm