News Review: Specialist Prime


Understanding borrower diversity is crucial by Charles


Haresnape, managing director, Aldermore Residential Mortgages


Sometimes, we’re guilty in the mortgage industry of making generalised statements about the market which create a misleading impression that all borrowers are the same. You know the sort of soundbites i’m referring to: “all homeowners are locked- in by a lack of housing finance” and “all first-time buyers unable to get a foot on the first rung of the housing ladder”. although these comments may reflect the plight of many, they certainly don’t apply to all. anyone who has worked in


this industry knows only too well that homogenous is not a term that can be applied to the mortgage market; every client is different is a far more accurate reflection of reality. this point was bought


home to me recently when aldermore launched its 100% LtV Family guarantee mortgage. although the feedback was overwhelmingly positive, there were inevitable comments questioning the competitiveness of the rate, or whether lending 100% of the value of a home was responsible, or whether it would be better for parents to give their kids cash rather than underpin their mortgage with a guarantee. in making these comments,


people invariably made assumptions about the nature of our target market: first- time buyers. For example, some people clearly believe


that anyone borrowing 100% of their value of their home is almost inevitably going to end-up in arrears, because they have no skin in the deal. Which is clearly not true.


Responsible FTBs there are plenty of responsible


first-time


buyers and, provided that affordability is rigorously assessed before a loan is granted, there is no reason to exclude them from the market. in fact, many would- be homebuyers are currently paying more each month in rent than they would for an equivalent mortgage, so there is every reason to believe they should be able to keep on top of their mortgage payments. Likewise, there was


an assumption made by some that all parents are in a position to give their offspring cash rather providing a guarantee, which is also not true. i suspect that an awful lot of parents, by the time their kids leave home, are equity rich but cash poor and therefore don’t have the ability to simply put their hands in their pockets and hand over a substantial wad of cash. and in criticising the mortgage rate for being too high, there is an assumption that first-time buyers with no savings have the option to choose products offering lower rates. also not true. i have to say that comments relating to the rate were the most difficult to swallow because it is so often assumed that lenders are simply profiteering at their clients’ expense. Believe me, if we could


22 mortgage introducer OCTOBER 2011


market this product at a lower rate we would have done so. in setting the rate we had to take into consideration the cost of capital, which has a considerably higher risk weighting for 100% loan to value loans.


“Specialist mort- gage products will be right for some people and not for others because not all borrowers are the same”


Each to their own my main point is that the Family guarantee mortgage, like a lot of other specialist mortgage products, will be right for some people and not for others, because not all borrowers are the same. it simply doesn’t work assuming that every mortgage product will be, or should be, suitable for every borrower. if, for example, a borrower


can afford a 5%, 10% or 15% deposit, then they’re going to be able to get a more competitive mortgage than if they have no deposit at all. in which case, that’s precisely what they should do. Likewise, if a parent can afford to give their child a 25% cash deposit then, clearly, considerably more options are going to be available to their offspring which they should consider. However, there are significant numbers of first-time buyers who are creditworthy, who can comfortably afford their mortgage payments, who


have very limited savings that will quickly get eaten-up with the costs of setting-up home for the first time, and whose parents are equity rich but cash poor and are willing to help. For them, aldermore is providing an option where very few options previously existed. it seems to me that there’s


little point in new lenders coming to market and simply competing head-on with the big banks for vanilla sub 75% LtV mortgage business, when there are already plenty of deals available in that segment of the market. We would have little new to bring to the party.


Finding a niche new lenders can add real value by addressing those niches that have been largely ignored by traditional lenders. But specialist products are always going to be soft targets for critics because, by definition, such products are never going to feature rock-bottom,


bargain


basement rates and criteria that make them suitable for everyone. i believe that what the mortgage market desperately needs at the moment is more innovation; more lenders who are willing to do address those issues that have plagued the mortgage market for far too long. the market is made up of millions of borrowers most of whom have very different needs. there’s no point having a market dominated by a small number of big lenders, all offering the same deals for prime, low LtV borrowers.


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