The Intermediary – February 2025 - Flipbook - Page 72
T E C H N O L O GY
Opinion
Right data, right
time, right reason
A
key point of gathering
and managing
data for clients is
to support their
decision-making.
Already, we are seeing
changes and opportunities in how the
information we have could materially
help lenders over the coming months.
Chancellor Rachel Reeves sat down
with regulators in January to suggest
that boosting growth by relaxing
mortgage lending rules should be on
the table. Financial Conduct Authority
(FCA) chief executive Nikhil Rathi
confirmed that the regulator will
be “simplifying responsible lending
and advice rules for mortgages,
supporting homeownership and
opening a discussion on the balance
between access to lending and levels
of defaults.”
The FCA will also open a
consultation on removing maturing
interest-only mortgage and other
“outdated guidance,” and work with
Government to remove overlapping
standards, such as the Mortgage
Charter which came in during 2023.
The areas to be examined include
financial stress-testing rules that
limit how much first-time buyers
can borrow. Currently, lenders are
required to limit the number of
mortgage loans made at or greater
than 4.5-times loan-to-income (LTI) to
no more than 15% of their residential
lending – the flow limit rule that came
in following the global financial crash.
Last year, Nationwide called on the
Government to review that on the
basis that it was constraining lending
to first-time buyers. The Intermediary
Mortgage Lenders Association (IMLA)
has consistently argued that the limit
is not consistent with the wider FCA
affordability regime, as it “constrains
lending that the FCA regime deems
affordable and disproportionately
impacts first-time buyers.”
Reports also suggest further
loosening of stress testing affordability
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The Intermediary | February 2025
is under review. In 2022, the Bank
of England scrapped the mandatory
3% stress test, which came in at the
same time as the flow limit. However,
most lenders still test affordability at
or above their standard variable rate,
oen between 6% and 10%.
If that is relaxed, and rental
payments are used more widely to
demonstrate affordability, it would
mean many more first-time buyers
pass affordability tests. There’s also
talk of cuing capital adequacy
ratios for 90% loan-to-value (LTV)
mortgages.
Energy performance
December also saw an interesting
move from Halifax on LTI criteria.
They now take into account the
Energy Performance Certificate
(EPC) rating of the property when
underwriting affordability. Halifax
Intermediaries and Scoish Widows
Bank head Amanda Bryden says: “We
know that typically, more energy
efficient homes are cheaper to run.
Using [EPC] data and energy bill
analysis, we’re able to reflect that in
mortgage affordability.”
Homes with a rating of A or B will
see an increase in the amount Halifax
will be able to lend. Homes rated C, D
and E will see no change, and Bands F
and G will see a small reduction.
The amounts aren’t huge, but there
is an incentive for borrowers to go for
more energy efficient properties.
It’s an interesting idea, particularly
in the context of higher energy bills
and the UK’s commitment to cut
carbon emissions to net zero by 2050.
In 2022, residential buildings
accounted for a fih of greenhouse
gas emissions in the UK, according
to Government statistics. The
Climate Change Commiee has said
the UK will not meet its emissions
targets “without near complete
decarbonisation of the housing stock.”
While strict standards apply to
new-build homes, there is still a huge
MARK BLACKWELL
is COO of CoreLogic UK
question when it comes to cuing
emissions from existing stock.
During the Budget, Labour
commied £500m to its Warm Homes
Local Grant, intended to provide
energy performance upgrades and low
carbon heating via local authorities.
However, the grants are only available
to low income households in England.
Of homes with an EPC, around eight
million in England (58%) and 460,000
in Wales (62%) were rated below Band
C, according to the Office for National
Statistics (ONS).
For years now, lenders have
been under pressure to offer green
mortgages designed to incentivise
borrowers to improve their homes’
energy efficiency. Halifax’s move is an
interesting development that will be
welcome for some borrowers.
There is a wider consideration,
however – linking LTI to a property’s
energy efficiency rewards those who
already have energy efficient homes.
For those whose homes are hard to
upgrade, not suitable for heat pumps
or insulation, or who cannot afford
the outlay, there’s a danger that, over
time, they are penalised on how much
they can borrow.
Some might argue that there is
an imperative to lend more against
lower EPC banded homes, with a
contingency that the additional
borrowing is spent on improvements
to their energy efficiency.
These issues require dependable
robust property data and processes for
gathering that information if lenders
are to make the right steps forward
while not excluding some borrowers.
There is rarely a silver bullet for
big challenges, but we know from
experience that the right blend of
data sets and expertise can turn those
challenges into opportunities. ●
