In the mortgage market, we have lots of different ways of describing customers depending on where they are in their lives. We talk about first-time buyers, mainstream borrowers, complex income and later-life customers, but we can sometimes forget that these are not necessarily different groups of people at all, because one borrower could quite easily move through several of them during their mortgage journey.
A customer’s circumstances are never going to stand still simply because they have completed on a mortgage, and that has implications for how we think about lending.
Someone buying with two incomes today might be self-employed further down the line, while another borrower could find themselves moving onto one income or carrying their mortgage much further into later life than they originally expected.
THE SAME LABEL CAN HIDE VERY DIFFERENT BORROWERS
Research by reallymoving has found that a solo first-time buyer in England saving 10% of their take-home pay would need nine years and five months to build the £27,315 required for a typical 10% deposit and upfront buying costs.
For someone buying jointly, that falls to four years and eight months. This example alone shows the difficulty with assuming that two people described as first-time buyers are necessarily facing the same challenges.
Rightmove’s August figures add another layer, putting the average asking price of a typical first-time-buyer property at £225,525. Borrowing at 4.5 times the average salary for one person equates to £176,904, compared with £353,808 for two people.
The label might be the same, but what those first-time buyers need from a lender can be completely different, and that is before you get into the nuances of income, deposit or the property itself.
WHEN DIFFERENT PARTS OF THE MARKET MEET
We often see cases that show just how blurred these lines can become. One we supported recently involved a first-time buyer purchasing her own home, with her mother joining the mortgage as an additional borrower through a Joint Borrower Sole Proprietor arrangement.
The mortgage term extended into the mother’s retirement, bringing together first-time buying, family support and later-life affordability within the same application.
There is another way of looking at that case, because there is nothing particularly complicated about what the customers wanted to achieve. A daughter wanted to buy her first home and her mother wanted to help her do it, yet once you translate that fairly ordinary ambition into mortgage criteria, you are crossing first-time-buyer, family support and later-life lending within the same application.
ARE BORROWERS REALLY BECOMING MORE COMPLEX?
That raises a question about whether some of what we call borrower complexity actually comes from the borrower, or from the way the mortgage market has traditionally divided customers into separate categories.
Those categories clearly have a purpose, but they become less useful if they start to dictate what we expect somebody’s finances or circumstances to look like.
Nor should we assume that the circumstances at completion will still be the circumstances a lender sees further down the line, because plenty can change once somebody owns their home.
They might move from employment into running their own business or see their household income change considerably, meaning a mortgage that looked fairly straightforward when they bought the property could require a very different approach when they next need a lending solution.
The customer has not necessarily become a worse lending risk because of that change, and the answer does not automatically need to be complicated either. Sure, there have to be guardrails around any proposition, but having the ability to understand what sits behind a case can make the difference between identifying a perfectly sensible solution and ruling somebody out because their circumstances no longer resemble the category they once occupied.
PERHAPS WE NEED TO BE MORE CAREFUL WITH THE WORD ‘COMPLEX’
There will always be mortgage cases that require more work, and there must always be sensible boundaries around lending, but a customer should not become complex simply because their life has moved from one part of the mortgage market to another.
The challenge for lenders is being able to recognise the good borrower underneath those changing labels, while for brokers it is knowing which propositions have enough flexibility to do something with the case in front of them.
If we can get that right, we may find that plenty of supposedly complex mortgage journeys are actually fairly ordinary lives viewed through criteria that were expecting something else.
That, I think, is where lenders have a real opportunity to provide solutions without compromising the responsible lending principles that need to sit behind every mortgage.
