Self-employed and defaults among the most searched terms by brokers
New research from criteria search specialist Knowledge Bank in December shows a shake up in the mortgage market as lenders, mortgage brokers and clients look to adjust to the shifting landscape. Knowledge Bank is the largest database of mortgage lending criteria held anywhere in the UK, and the monthly criteria index shows the terms that brokers are actually searching for.
The biggest shake up in December was in the second charge market. In the second charge arena ‘Maximum loan to value (LTV)’ and ‘Child benefit’ were the only two constants from November’s top five searched terms. The second highest searched criteria by brokers was ‘Defaults – unsatisfied’ which suggests that clients with a history of missing payments are looking to take out a second mortgage. This could be to secure unsecured debt against their home and reduce the level of interest they are paying.
‘Self-employed with one year of accounts’ was among the top five most searched terms in the second charge market for the first time since July 2020. This may be as a result of freelancers looking to use equity in their home to secure debts or even to redevelop. Potentially to convert a loft or shed to a home office to work from. Or it could demonstrate the amount that those who are self-employed are struggling and so are looking to release extra capital from their homes to help with day-to-day living costs.
Interest in the maximum LTV clients can borrow has been a constant for most of this year across the mortgage markets, as lenders have reduced their appetite for risk in response to the pandemic. However, November and December were the first months since the pandemic began that maximum LTV was not among the top searched terms in the residential market. This is due to lender confidence returning, with 90% LTV mortgages being brought back by Aldermore, Furness Building Society, Barclays, Saffron for Intermediaries and NatWest in December. With news of a vaccine, confidence may continue to build, however the recent lockdown and upcoming end to the furlough scheme may cause some lenders to be more cautious moving forward.
‘Furloughed worker’ and ‘Soft footprints at the decision in principle (DiP)’ stage were understandably still of interest for brokers and their clients in the residential market. Both of these criteria featured in the top five most searched terms, as they did in November. This trend looks set to continue with another lockdown now in effect the furlough scheme extended until at least 31st March. This is likely to result in lenders continuing to restrict criteria for those on the scheme.
The continued interest in soft footprint applications in residential searches may be connected to the furlough scheme, as clients with lower credit scores are looking for applications that will not harm their chances elsewhere. Another potential reason may be the stamp duty holiday. With brokers looking to arrange clients’ mortgages quickly, they may be applying to multiple lenders at once and do not want these applications to harm the applicants credit score.
With the Help to Buy scheme being amended from 15 December 2020, there was a huge urgency for brokers looking to help their clients to secure a mortgage before the deadline so it is unsurprising that it was the fourth most searched for criteria in December. The successor scheme came into effect from 16 December, however the new version includes regional caps and is limited to first-time buyers only.
In the bridging market lending to limited companies reached the top five searched terms for the first time since May 2019. This suggests businesses may well be looking for bridging loans secured against properties, either to cover costs or to redevelop and office space. It might also hint that landlords are using bridging loans to renovate a buy-to-let property.
‘Heavy refurbishment’ was included in the top five searched terms in the bridging market for the first time since September 2020. This may be due to the shift towards more home-based working with clients looking to undertake major redevelopments to add a space for them to work in.
Matthew Corker, lender relationship manager at Knowledge Bank, commented, “The market is again shifting quickly in response to the changing environment. Confidence has been building with the number of 90% LTV products available increasing in the residential market. This confidence may have been due to the approval of the vaccines and it remains to be seen if the latest lockdown will dent this fragile confidence.
“The increase in interest in defaults in the second charge market shows there is a trend of those with missed payments potentially looking to secure debt against their property. This combined with the interest in soft-footprints and furlough shows there are a lot of brokers working with clients who may be struggling financially.
“With another lockdown, lenders are certain to continue adapting criteria to keep up with the evolving market. It is now physically impossible for any mortgage broker to keep all the different criteria in their heads. So, it is now more important than ever for brokers to use a comprehensive criteria search system to ensure they can provide their clients with best advice – and evidence that they have done so.”
Criteria Activity Tracker
Top five searches performed by brokers on Knowledge Bank during October 2020
|RESIDENTIAL||BUY-TO-LET||SECOND CHARGES||EQUITY RELEASE|
|1||Maximum Age at End of Term||First time landlord||Maximum LTV / Loan To Value||Property with an Annex / Outbuildings / Land / Acreage|
|2||COVID-19 : Furloughed Workers||Lending to Limited Companies||Defaults – Unsatisfied||Flat Roofs|
|3||Self employed – 1 years accounts||Minimum Income – Interest Only / Part and Part Single Applicant||Child Benefit||Steel Framed Construction|
|4||Help To Buy Equity Loan Scheme||Requirement to be a Homeowner||Foster Carer’s Allowance||Maximum LTV / Loan To Value|
|5||Soft Footprint at DIP Stage||Consumer Buy To Lets||Self Employed – 1 Years Accounts||Early Repayment Charges|
|1||Maximum LTV / Loan To Value||Regulated Bridging||Semi-Commercial Properties|
|2||Lend Against Land||Maximum LTV||Minimum Loan Amount|
|3||Custom Build – Lender Exposure Limits within a Development / Postcode / Area||Minimum Loan Amount||Maximum LTV for Commercial Investment|
|4||Architect’s Certificate||Heavy Refurbishment||Maximum LTV / Loan To Value|
|5||Maximum LTC – Loan to Cost||Lending to Limited Companies||Mixed Use Properties / Part Commercial|