Blog: Stamp Duty, the Election and the great mortgage excluded

Monday 19th April 2010

By Michael White, chief executive of online mortgage advisers, Email Mortgages

In this business you sometimes wonder if anyone’s listening. This was often the case on the current method of calculating Stamp Duty which, unless you’re a Government Minister, has seemed to be a particularly antiquated system given the vast increase in the price of the average house over the last ten or so years. 

Therefore it was pleasing that the Chancellor finally took notice of what the industry has been saying for years and moved the threshold for first-time buyers to GBP 250k, albeit only for an initial two-year period.  It would have been nice if the increased threshold applied to all buyers, not least because of the potential administrative difficulties that could now arise, but if we have learnt anything in the past few years it is not to spend our lives wishing for what might have been.

Far be it for me to suggest that my last Introducer Today blog, which called for this very move, had anything to do with the decision, except to say that I can neither confirm nor deny that a telephone conversation took place between the Chancellor and I just days prior to the Budget.  Heavy hangs the head that wears the crown, and all that.

Anyway, given that the Election now dominates the media, the Budget almost appears like a footnote in history, and depending on the result come the 7th of May it may be even less than that.  This has been the week of the manifesto and one cannot help but wonder what life will be like for the mortgage and housing markets in a new Parliament.

At the moment there certainly seems to be greater life in the old mortgage dog with a small number of new and old lenders entering/re-entering the sector and much greater competition with many players cutting product rates over the last couple of weeks.  This is all good for the client – particularly first-timers - who six months ago would have been wondering where the 90 per cent LTV market had disappeared to but may now find a number of options which were simply not available in 2009.

There is as always room for improvement and one still has the nagging doubt that lenders are missing tricks in some areas.  For example, I have long been a proponent of the interest-only mortgage as a more than suitable product for a first-time buyer. It is unlikely they will stay in their first home beyond five years and it is at the start of the mortgage road when the ability to pay that interest and capital monthly payment is likely to be most difficult.  However, here the impact of the regulator has been keenly felt and lenders are certainly being urged to shy away from interest-only which is why a 75 per cent LTV deals is the maximum borrowers can probably hope for and even then all concerned are being urged to base their affordability calculations on the borrower’s ability to pay the full repayment amount.  Again, one knows for a fact that at this stage the point will be made by the FSA that if the borrower can afford the interest-only product based on the full repayment amount, why aren’t they taking out the repayment product in the first place?  In that sense the rock and the hard place is formed and for first-timers in particular the interest-only opportunity is lost. 

There is certainly a sense of short-sightedness from the regulator in this regard, indeed, one can clearly see a similar process at work in its attempt to kill off self-cert/fast-track – depending on whether it’s clear about what each one is - and sub-prime at the same time.  I’m a great believer in allowing lenders to price for risk. I also think it should be the lender’s decision how it wants to price its product and the criteria it expects to be fulfilled by the applicant to achieve the loan.  This comes with the caveat of course that lenders must lend responsibly, which was not the case for many during the pre-credit crunch years.

We are still left with a situation where vast swathes of borrowers or potential borrowers are going to find themselves at the margins of the market over the next couple of years.  While Base Rate and lenders’ SVRs remain low the situation is not too bad. However when rates rise we will see many remortgagors/self-employed/credit impaired candidates struggling to gain finance and forced instead to stay on uncompetitive rates or look elsewhere.  If we are able to get some more liquidity and sense into the mortgage market then it is imperative that the lenders feel able to offer these types of borrowers mortgage products. We are not talking about the heavy adverse/serial non-payer here but those who have been marginalised by recent events through no fault of their own. Lenders should remember that not all borrowers are squeaky clean but many are very far from high risk and should be able to find a mortgage product and lender that suits.

Michael White is both founder and chief executive of online mortgage advisers, Email Mortgages.com. Email Mortgages was established in 2008 and is a mortgage advisory practice providing consumers with tailored fee-free advice online via email.  Michael has been working in financial services for over 30 years and been involved in a number of new business start-ups including Chase Manhattan Homeloans, Legal & General Mortgage Services and Kensington Mortgage Company.  His last job prior to Email Mortgages was as founding director of the lender London Mortgage Company, established in 2001 and sold to Lehman Brothers in 2006.