It’s difficult to see the advantages of relaxed mortgage affordability

No sooner had our new Secretary of State for Levelling Up, Housing and Communities, Michael Gove MP, suggested lenders had been ‘overcautious’ in their lending policies to first-time buyers since the financial crash of 2008, that we now hear the Bank of England is considering a softening of affordability checks.

The two points are, of course, intrinsically linked. Lenders have followed the affordability rules laid down for them, and if that is deemed to be an overcautious approach well then that’s the approach the regulators and Bank has deemed to be the right one for them to follow. 

That being the case, it seems hard to argue convincingly for a change, although of course this is likely to bring more demand into the marketplace, which is good for advisers who will no doubt have come up against such affordability barriers for clients over the years.  

Barriers which have meant the client in question wasn’t able to secure the mortgage they wanted to buy the property they desired, even when it would appear they could afford it.  

Now, I’m already in danger here of talking my way out of an approach which loosens the affordability requirements for lenders, because in certain cases it would allow potential first-time buyers to be turned into actual first-time buyers. And yet… 

I can’t quite come to terms with whether this is the right approach to be taking, and whether we are in danger of forgetting recent history, with a move which makes it easier to secure a mortgage. 

Is intervention needed? 

Indeed, you might well look at the mortgage and housing markets over the last year and a half – albeit fuelled by pent-up demand from the lockdown and the stamp duty holiday – and wonder whether this sort of intervention is actually required. 

Purchase transactions will number close to 1.5m this year; all the predictions I have seen for 2022 anticipate this will drop but will still be historically strong at the 1.2 or 1.3m level.  
First-time buyers have access to high loan to value (LTV) product numbers we could have only dreamt about at the start of the year, plus the Help to Buy scheme is now only for them, and they have other schemes like Deposit Unlock for their benefit. 

Do we therefore need a loosening policy which effectively injects even more demand into the market, when I think we’re all acutely aware of the supply-side issues we continue to have, and what this is likely to mean for house prices.

I have my doubts. 

At this point, I fully anticipate that I’ll be met with a number of stories about clients who were paying more in rent than their anticipated mortgage payment and yet couldn’t get through those affordability measures in order to secure that mortgage. 

I have some sympathy and can see how a more tailored, individual approach to underwriting in this area would help these people out.  

Treading carefully 

And yet I can’t help thinking that the measures we’ve had, the tighter checks that have to be done, the stress testing levels in place, have not just served a purpose for the past but have a job to do in the future. 

Perhaps I am being ‘overcautious’ myself here and my worries are unfounded. But perhaps not?  

I’m not saying a softening around affordability would result in a cataclysmic Credit Crunch-esque event but I would prefer an environment which gave us all a sustainable market we could rely upon for many, many years to come.  

Affordability measures can be an issue for some borrowers, but I tend to think there was a very good reason why they were put in place and the Bank should be ultra-cautious itself around any changes it might wish to introduce for them.