It is a good thing that the government has asked regulators to consider relaxing loan-to-income (LTI) limits to improve access to the housing market, but this should come with protection for borrowers, April Mortgages’ Rachael Hunnisett said.
Speaking to Mortgage Solutions, the long-term lender’s director of mortgage distribution said the proposed idea was “positive” but she had concerns over whether guard rails would be in place after the initial term ends.
This echoed concerns raised by the Financial Conduct Authority’s (FCA’s) CEO Nikhil Rathi, who said relaxed lending rules would lead to more defaults.
Hunnisett said April Mortgages was comfortable lending at six times LTI on a 10-year product because it gave the borrower long-term certainty, while other options only guaranteed this for a shorter period.
“We’ve seen what happened with the Liz Truss mini Budget. We’re all expecting rates to go down, but no one really knows. What happens if, in two years’ time, lender policy reverts and [borrowers] can’t remortgage at six times LTI because there’s been some economic event?
“When house prices start to tumble, the first thing [lenders] do is pull out of high-LTI and LTV [loan to value] lending, so my concern would be high LTV needs to be met with the measures that keep a customer safe. Rather than just high-LTI lending. I hope the Financial Conduct Authority and Prudential Regulation Authority do, and that it’s sensible with a view of protecting the customer.”
How the housing landscape is set to shift
Sponsored by Halifax Intermediaries
She said without considering the certainty offered by a long-term lender like April, changing the LTI limit was a “really nice headline”, but it came down to what happened to a borrower at the end of a deal’s maturity.
Hunnisett said: “What guarantees can be around those customers? For someone borrowing at six times LTI, the mortgage payment will probably be 60% or 70% of their take-home pay. That’s a really high mortgage payment. It has to still be affordable.”
Hunnisett also questioned whether lenders would review affordability models.
Although lenders will cap lending at a certain level – for example, six times LTI – Hunnisett said their internal affordability calculations often went higher, maybe to around eight, to leave some headroom.
A truly accessible market
Hunnisett said higher LTI limits were usually only available to PAYE-employed borrowers and those on higher salaries, which was “not helpful”.
“We’ve got a major housing crisis in the UK, major challenges for accessibility to homeownership… the bigger conversation is how a lender is going to modernise and accept that customers of the future do have debt and two incomes because life has changed,” she added.
Hunnisett said lenders needed to be more inclusive because the sector was not doing enough to help “single mums who work three jobs, the fireman who does four days on and four days off and has to have a second income, people who have debt because times have been hard but are now back on their feet, and people who have gone through a divorce”.
On the growth path
She said April Mortgages’ ethos was around peace of mind and long-term certainty. The lender recently launched its AffordAbility+ calculator, which enables brokers to see what loan a borrower may be able to access on a five-, 10- or 15-year term.
With this, April Mortgages aims to “push the limits on our affordability modelling” to maximise the six times LTI cap, see what allowances can be made and utilise all of a person’s income.
Hunnisett added: “The mortgage market in the UK is nowhere near as modern as it needs to be. We’re pushing the boundaries constantly to make sure we keep being ahead of how to support customers, now and into the future.”
April Mortgages has received a positive reaction since launching early last year and business has been picking up this year, which Hunnisett suspected was coming from people who had been hit by the mini Budget and did not want that to happen again. She said the lender was also seeing many first-time buyers who liked feeling “financially empowered” by knowing what their outgoings were and having the ability to make overpayments.
Hunnisett said the lender had “huge growth ambitions” and wanted to get to £1bn by the end of next year and expand its team.
“This is a really exciting year for us because it feels like now our distribution is in a really good place and it’s just continuing,” she added.
Within her role, Hunnisett said she was thinking about strategy, whether brokers needed business development managers (BDMs) and how to efficiently support them.
Hunnisett said: “That’s the challenge I’m grappling with at the moment. We want all our brokers to feel really special – how do we do that effectively?”
She added that April Mortgages wanted to maintain its bespoke relationship with all its broker partners so they would all feel special, not just the ones who did the most business with the lender.
