Competition in new-build mortgage lending is heating up as lenders climb the loan-to-value (LTV) curve and loosen affordability restrictions, with the expectation of more to follow.
Multiple lenders made improvements to their new-build mortgage criteria last month, including Nationwide, Santander and Newcastle Building Society. Meanwhile, a wider acceptance of foreign nationals at higher LTVs has been welcomed by new-build brokers.
Against the backdrop of the government’s ambitious housebuilding target and with no replacement of Help to Buy on the table, lenders see new-build buyers as a strategic growth area and are ready to take on more risk to capture a bigger market share.
Among the recent changes made by lenders was Nationwide’s move to up its LTV to 95% for houses and 85% for flats. The mutual also loosened restrictions on its Helping Hand deal, which is also available to new-build borrowers, by lowering its minimum single and joint income restrictions to make the deal more widely available.
Santander also made improvements to its affordability criteria for new-build borrowers, while Newcastle Building Society increased its LTV for flats up to 90%.
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John Doughty, Chapter managing director at Just Mortgages, says: “Santander sees new build as a key area of lending, given the government’s housebuilding ambitions, and wants to achieve as much market share as it can.
“Lenders are also going to be looking at the quality of their book from an EPC perspective, which new build really drives in terms of efficient A- and B-rated homes.
“But at the heart of everything is first-time buyers, affordability and getting them on the ladder. As the government tries to meet its 1.5 million new homes target, lenders will want to get involved as best they can.”
He adds: “I wouldn’t be surprised to see other lenders follow suit in some way.
“Developers have some real challenges with Help to Buy disappearing. But at the moment in the industry, we’re really seeing lenders trying to support people onto the housing ladder, and the changes from the PRA may give lenders more opportunity to be more flexible and offer the route more easily.”
Recognition of track record
Going up the LTV curve offers lenders operating on tighter margins the opportunity to make more profit, says Helen Pierson, director and Mortgage Advice Bureau (MAB) network partner. She notes that new build is a competitive market, which makes it a good sector in which to increase LTVs because, as it is already well-served, they will not be flooded with business.
She adds: “I think there’s a move towards track record, which is a good thing. If someone is renting and maintaining payments, then surely that needs to give them some kudos when they’re looking to get a mortgage.
“Skipton spearheaded that with their Track Record mortgage, but I think we’re starting to see a bit more movement there.
“If [tenants] are maintaining rent that’s going to be similar to the mortgage repayments, that really ought to be taken into consideration to a greater extent and I think we have started to see that coming.”
Complexity creates opportunity
Other recent innovations from lenders targeting the new-build market include Gen H’s New-Build Boost, a private version of the Help to Buy scheme. The lender offers borrowers with a minimum 5% deposit a mortgage up to 80%, with the 15% gap being filled by an interest-free loan supported by the builder.
New entrant Gable Mortgages has shot straight to top of the LTV curve with its 100% mortgage, offered on homes being sold by developers including Davidsons, Gleeson Homes and Genesis Homes.
Pierson says this type of innovation opens up conversations with borrowers.
“The more complex the market gets, the more schemes out there, the more people do actually need advice, because they are not necessarily going to get it if they go direct to a lender. Lenders can only speak about their own products,” she adds.
Increased interest in foreign nationals
Higher LTVs in new build are also being extended to more foreign nationals, a move welcomed by Noord Romjon, director of New Homes Mortgage Broker (NHMB).
When Help to Buy was still in operation, says Romjon, foreign nationals were well-served and now, thanks to recent improvements in lender criteria, it is good business again.
He adds that many foreign nationals looking for a mortgage receive good salaries and work in professional sectors such as banking and IT, making them attractive customers.
However, most lenders insist on a 25% deposit from foreign nationals, making it difficult for them to get a mortgage on a new build. Brokers looking for higher LTVs and more flexible terms have, in the past, been restricted to Halifax, Barclays and Skipton, adds Romjon.
More recently, however, Nationwide and Nottingham Building Society have joined them by improving their criteria.
While lenders have been careful not to disclose their upcoming plans, Romjon says they have hinted that there are more changes to follow.
“You can see that lenders are trying [to improve access to borrowing], but I still think they can do more around 95% mortgages on new-build flats.
“There are more options than there were, but there’s still not enough. Santander, for example, brought in 95% on new-build flats and houses, which was brilliant, but in the areas we serve in London, it’s still restrictive because the maximum purchase price is capped at £400,000,” he says.