Issue 175: 2018 10 25: First-Time Buyers

25 October 2018

First-Time Buyers

v. over-cautious banks.

By Lynda Goetz

My daughter received a mortgage offer this morning.  After just over three months, massive amounts of bureaucracy, form-filling, incredibly intrusive questioning about life-style and expenditure, requests for further information, further requests for information already supplied, as well as very nearly losing the property she is hoping to buy, there was huge relief all round.  I had, perhaps rather naively, believed that the Government was keen to encourage first-time buyers into the market.  A number of more or less successful initiatives have been put in place, supposedly to help achieve this.  It appears that what perhaps they haven’t done is to share this ambition with the banks or at least managed to get them on board with the idea.  Lenders, it seems, are increasingly cautious.

My daughter is in her mid-twenties.  She qualified as a doctor earlier this year and is currently doing her first F1 (Foundation Year 1) ‘rotation’.  Her salary is paid according to the system established under the previous Health Minister, Jeremy Hunt; namely as a basic salary plus non-voluntary overtime and on-call hours.  Even though the information on junior doctors’ salaries is in the public domain, this immediately seems to cause an issue with most mortgage lenders.  Add to that the fact that she had only just started work when she began applying for a mortgage (through a reputable broker) and the difficulties mount up.  Irrespective of the fact that as a doctor she is effectively an essential health worker and unlikely to be out of a job at any time in the future, it seems that lenders did not like a) the fact that the salary is paid as two components (they kept referring to bonuses!); b) the fact that rotations are temporary contracts (even though doctors need to complete the entire two year Foundation to continue their medical career) and c) the fact that she had only just started work and did not have three or preferably six months of pay slips to produce.

Young people,as we all know, are generally not in a position to purchase without some additional help. Since the financial crisis, the banks are understandably wary of lending money, even with security, which they consider could not be repaid.  This, I get.  What I don’t get however is that most were unprepared to lend even where my daughter’s savings and my gift together amounted to 45% of the value of the property.  In the unlikely event of a forced sale by the mortgagee the market would have to have dropped by over 40% for the bank to lose its money!

To say I found it shocking when Clydesdale Bank (which had initially offered to lend after being given all the relevant information) turned round after five weeks of ‘shilly-shallying’, including charging £450 for a (satisfactory) valuation survey, and declined to offer, not simply the original amount, but anything at all, would almost be to understate the case.  I was in a state of disbelief.  All the broker could offer by way of explanation was that the bank was ‘not comfortable with the fact that she had only just started work’.  Well, forgive my incredulity, but surely we all have to start somewhere?  How or why does the fact that she is currently unable to produce three-months’ worth of past pay slips affect in any way her future ability to keep up repayments?  (It also seems particularly ironic that the Government is concerned about the insufficiency of doctors and NHS England announced on 4th October that it is apparently trying to lure back GPs who have gone to Australia, as well as trying to recruit some Australian doctors.  That being the case, it seems to be a matter of some surprise that young doctors are not given active encouragement to purchase property rather than being ground down and ‘spat out’ in a tick-box system of mortgage applications).

Interestingly, on 11th October, the Bank of England produced its quarterly survey of credit conditions. This showed that the availability of secured credit to households had decreased in the three months to the end of August and was expected to decrease further in the three months to the end of November. Demand however had not decreased.  Despite this risk-averse behaviour from lenders, default rates for both secured and unsecured lending to households had fallen over the same period and was expected to remain the same over the next three months.

On the following day, 12th October, the Government published its response to the Treasury Select Committee’s report on household finances issued at the end of July.  This agreed with the Committee that, inter alia, “households’ financial positions have greatly improved since the financial crisis with debt to income significantly below pre-crisis level”.  The Government states also that ‘it continues to monitor household finances closely’ and that it is ‘guarding against risks associated with mortgage-debt build-up’. All of which is reassuring, but does leave one wondering how, if at all, it is encouraging banks to make mortgages available to first-time buyers, particularly those with essential and secure jobs, to enable them to get into the housing market and not be left paying rent for years?

If a junior doctor finds it nearly impossible to get a mortgage – even with a 45% deposit – how difficult must it be for others?  Never mind Help to Buy ISAs, LISAs and Equity Loan schemes for new-build properties, or even stamp-duty concessions, what about a word in the ear of all those over-cautious banks reluctant to lend on the basis of future earnings?  I do understand (although thoroughly dislike) that increasingly computers are in charge of decision-making, but perhaps this should be one where human common-sense prevails.



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