Are Mortgage Lending Criteria Becoming More Flexible?

The various schemes introduced by the British government during the past year or so, such as Funding For Lending and Help To Buy, have resulted in driving down average mortgage rates to below 4 per cent. But what has had a more significant effect on the number of home loans being approved is that banks and other lending institutions have also been gradually making their lending criteria less stringent, making it easier to obtain a mortgage, even for those not in permanent employment.

This is good news for professional workers who typically work on relatively short-term contracts but have high earnings, such as IT contractors. And for the first time since the start of the economic slump, some lenders will now approve a mortgage for professionals such as these providing they meet a minimum income requirement.

There are thousands of highly qualified, experienced professionals who work on a contract basis, often for the whole of their career but since the start of the recession it has been much more difficult for this category of worker (even a high net worth individual) to find a lender who would approve their home loan application.

This relaxing of lending criteria is a sign that banks are at last starting to make more sensible underwriting decisions with a view to helping potential customers. However, self-employed people, or freelancers without a contract,are not benefiting from the relaxed rules and will still have the affordability of any loan assessed based on the last three years’ accounts.

Another sign that banks are becoming more flexible in their approach to lending has been the launch of buy to let mortgage products aimed directly at the ex-pat community who want to buy a property in the UK to let out while they continue to live abroad. Such deals are available right up to a £1 million mortgage and, in some cases even more.

There has been a big rise in demand from expats looking for Buy-to-Let products, maybe as a result of the housing stock becoming more affordable during the economic downturn in relation to salaries. Much of this demand is from people who already own a portfolio of properties rather than first time landlords but have often found it difficult to obtain a UK mortgage because they are not resident in the UK.

As the property market as a whole continues to undergo adjustments to the new economic climate, the Buy to Let market is becoming a specialist area with respect to funding and several specialist lender/mortgage broker partnerships are developing to meet customers’ needs in this area.

New types of property loan deals for ex-pat buy to let customers, for instance, is further indication that some banks and other lending institutions are willing to offer innovative products, especially to high value mortgage clients. Many specialist mortgage brokers in London in particular deal with a large number of British citizens living and working overseas and new products are providing them with a range of alternatives when looking to invest in property in the UK.