Rory Joseph is director and Sebastian Murphy is head of mortgage finance at JLM Mortgage Services
The longest journey always starts with a single step; from small acorns do big oaks grow; and any other change maxim you want to come up with, can be thrown at a mortgage market, which can often seem very reluctant to do anything a little bit different.
However, if the last year has taught us anything, it’s that market norms are not set in stone – for instance, desktop valuations are just as good (even better in most cases) than physical valuations.
A question of cost control
More recently, we’ve learnt that nothing was really stopping lenders from offering 95% LTV loans – they just didn’t want to, and when the government contrived a more competitive market, they were happy to jump right in again.
There are other parts of this market which could do with a shake-up. There is no such thing as a UK housing market; instead it is made up of many thousands of micro, regional markets, often different in adjoining roads and certainly very different in any village, town, city you wish to step into.
The risks, and appetite to risk, lenders have in those different areas is also changeable. Certain lenders are active in England and Wales, but not Scotland, and no one bats an eyelid.
Building societies are active in different regions and no-one bats an eyelid. And yet some of our biggest lenders, who try to be all things to all borrowers, are averse to offering different mortgage products, and taking a different approach, depending on where the borrower wants to live.
There isn’t an estate agent in the land, who would say, for instance, that areas of the North East are similar to London, that parts of Yorkshire are the same as some in the home counties, and yet the mortgages, the criteria, and the assessment for borrowers in those areas is.
We all know that lenders blend their book regionally anyway, so why not choose to the do the same with the pricing and criteria for borrowers in those regions?
The answer, ‘it’s always been done like this’, looks even more irrelevant given what has happened in the past year. Revolutions have to be started by someone.
And what about, for instance, values? They play such a key part in the process with so much energy, time and frustration generated by lenders’ use of surveyors in this space.
And yet there is an opportunity to be revolutionary here as well, and not be so beholden to the ‘value’ placed upon a property.
Lenders want to know about values in case the borrower ends up not paying the mortgage for a considerable length of time, after which they have to repossess, sell and recoup the loan.
But, here’s the good thing for lenders. They are so good at lending and assessing their borrowers, that repossessions are essentially nil at the moment.
The chances of a lender having to repossess a property is therefore very close to zero, at which point as a lender you should realise you’ll never have to sell. So, why the obsession with value?
In other words, at the very start of that process to lend, let the market decide what the value is, not what surveyors or valuers determine it to be.
After all, let’s go back to that truest of maxims, the property is worth what someone is willing to pay for it.
Now we understand that when lenders are dealing with much smaller levels of deposit and equity, there will be a reticence to do this, but that shouldn’t be the case for those borrowers who are putting 20%-plus down.
There’s something of a nanny state approach to values in our market which can often do more damage than good; lenders have the opportunity here to effectively scrap a huge amount of market bureaucracy based on the confidence they should obviously have in their own lending decisions. Which, let’s be clear, they do for the most part very well indeed.
That’s just two areas where it should be possible to get a more nuanced approach and to cut out some of the nonsense that anyone entertaining getting a mortgage, or purchasing a property, has to go through.
We know there is a big campaign to improve the home buying and selling process for all – lenders should not feel they are immune from delivering in this area either.