It’s about the criteria stupid!

Posted on 8 March 2013 by Simon

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It’s about the criteria stupid!

Since the start of 2013, we’ve seen lenders jumping onto the “Let’s be seen to help first time buyers” bandwagon, and the rates for higher LTV’s (80%+)have come tumbling down.  However, figures released this week have shown a surprise fall in net lending, despite an increase in the number of lenders joining the scheme. This would suggest that all is not well.

In August last year, the Bank Of England’s Funding for Lending Scheme (FLS)was launched. There have been reams written about how it was going to be the saviour of the lending market, providing  lenders access to cheap funds which they then had no excuse not to pass on to borrowers. It was a great idea. However it hasn’t quite worked the way the bank wanted, with initially even more money thrown at the already highly competitive 60% Loan to Value (LTV) tier, while the higher LTV’s were left to struggle.

There are those who argue whether the demand for mortgages is still out there, because in an economy where households are already heavily indebted, they are more likely to reduce the burden rather than add to it. Therefore the cheaper deals from FLS won’t have anywhere near the desired impact.

However at John Charcol we can assure you that there is a big demand (February was a record month for enquiries), but as we say in the title, it’s the criteria which is key, not the pricing! If you aren’t eligible for the loan then rate is irrelevant. It's like the proverbial brick wall. Every day we deal with clients disappointed by the inflexible and quite often illogical lending policy of lenders they’ve spoken to directly, and are delighted to find someone who can actually assist them. Price is rarely mentioned in that first conversation.

It’s ironic that lenders are just starting to hint that they are looking at relaxing criteria, only now that rates have come down so low.

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