The power hour


wiTh funding sTill crippling The markeT, could Top-up finance be a feasible way To innovaTe and improve access To home ownership? Gareth Lewis: We are certainly having more of those sorts of conversations. Getting that final slice of top up equity to get a deal done can be something bridging finance can help with but I think it’s hard to do if you’re talking about a volume lend. It’s much easier to do in a niche market like short term finance. DW: Mezzanine finance is fine for the short term but it’s not sustainable over the long term against rental yields. Blended rates of a first charge and a second charge are also a nightmare to unscramble if things do go wrong and while the lender with the first charge would have first call on it, I just don’t think it’s something most lenders would be prepared to do. On the other hand, innovation is to be applauded. Barratt Homes has recently started a scheme offering unsecured loans to the parents of first time buyers. It was an open ended term, 5% fixed rate lending to mum and dad and that’s the sort of initiative we should be welcoming – it’s good to see someone trying to kick-start the first time buyer market. Ray Boulger: I think some sort of top up funding is well worth looking at more long term. There are some private institutions thinking about doing this sort of finance on the basis that they take an equity share. There’s a huge cost differential between a 75% LTV mortgage and an 85% LTV mortgage. If someone took say a 75% LTV mortgage, a second lender took say 15% and the borrower put in the final 10% - that could be viable alternative to taking the higher rate of interest on the


whole mortgage. The returns are there to make it work economically if you take a long term view on property prices. AC: I’ve seen at least half a dozen people trying to do this in the last year and I agree we need to find a way to get to higher LTVs but quite simply, if I had the first charge and someone wanted to top up in this way I would stop it. An unsecured or secured lender sticking money into a deal where I have first charge destroys the customer’s affordability and my risk calculations. I think there are more realistic opportunities to innovate with shared ownership in the new build sector. DF: We are involved with Barratt and support initiatives like that but honestly it comes back to risk. We are going to lend the amount of money we want to lend at the rate we want to lend it because that’s the market at the moment. JH: I think Paragon and a number of other lenders in the sector stand ready and willing to innovate to expand their lending to make higher LTVs available and address a broader range of landlords. I’m afraid the limitation isn’t really the lenders’ appetite or indeed their approach to risk. The lack of funding through the capital markets is the crux of the problem. We have to rebuild confidence in the money markets, ratings agencies and mortgage backed securities before any innovation can happen. AY: Funding really is at the heart of absolutely everything. There’s been complete lack of innovation in the buy-to-let market in the past two years and I don’t see that changing. It comes back to – without funding, why should we? JH: I think it’s important to say that we’re not simply whingeing about this


though. Both as individuals and at an industry level we are engaging pretty much every day of the week with government, regulator, rating agencies, banks domestic and foreign in a constant bid to ease the constraints impacting on all lenders. I am positive that did result last year in a significant uplift in MBS issuance. The Eurozone crisis is holding that back a bit at the moment. AC: I agree. Right now you can have conversations when 12 months ago you mentioned the word mortgage to an investor and you wouldn’t finish the telephone call. I think every lender out


40 mortgage introducer FEBRUARY 2011


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