Helping Near Prime borrowers access the new-build market

New-build properties will always be keenly in demand among buyers, and particularly those looking to take their first step onto the housing ladder.

The fact that buyers can avoid the wear and tear worries that come from purchasing an older property has always been a big selling point, while new builds are also more likely to have been designed with the needs of today’s residents in mind. For example, new builds may now come with heat pumps in place of traditional boilers, or an electric vehicle charger as standard, saving buyers having to make potentially costly alterations to a property post-purchase.

However, there is a danger that a significant subset of hopeful buyers  - those who fall into the Near Prime category - are being excluded from the market because of the outdated approach of lenders.

Why brokers are seeing more adverse clients

The economic difficulties of recent years have had a big impact on all sorts of households, and even if payment issues were temporary, the effect on their credit profile can be far longer lasting.

Energy bills, for example, have become a keener concern for many households over the last couple of years. We have seen energy indebtedness rise substantially, according to Ofgem figures, while Citizens Advice reports big jumps in the number of people it’s helping with energy bills.

This is replicated in other areas too, from water bills to Council Tax. As bills have gone up, more people have had the odd hiccup in their repayments, missing a payment or two. And while for some this is a sign of a more sizeable issue, for others it will simply have been a temporary problem that has now been resolved.

The trouble is that they now find themselves excluded by lenders who are only interested in Prime borrowers. We know that brokers are seeing more clients who fall into the Near Prime category, who have their finances in check but are being handicapped by what was little more than a one-off blip.

If lenders are serious about opening the doors to homeownership for more borrowers, then doing more to support Near Prime borrowers should be a top priority.

The new-build challenge

The options open to Near Prime borrowers are already more limited than those with an impeccable credit score. But the task of accessing the market becomes even more difficult if they are hoping to purchase a new-build property.

Given the premium that new-build properties command, the deposits required are more substantial in some cases. This is further exacerbated by the fact that lenders will commonly employ more restrictive LTV caps on new-builds than they would with an older property.

This combination can effectively freeze Near Prime borrowers out of the new-build market, particularly given the demise of the Help to Buy scheme which would have once helped to pick up the slack.

These borrowers represent a tremendous opportunity, however. Lenders who can combine more flexible lending towards borrowers with the odd black mark on their record, and higher maximum LTVs, can open up the new-build market to a swathe of buyers who are currently being kept at arm’s length.

The good of the market

The new build sector is incredibly important. Given the new Government’s stated aims about dramatically improving the rate of housing production, providing 1.5 million new homes over the term of this Parliament, we will hopefully soon see a far greater number of new build properties available to buy.

But these properties will only truly have an impact on the health of the housing market if they are accessible, and accessible to a wide group of potential buyers at that. Brokers will need to identify the lenders who are best placed to support not only those clients with spotless records, but also those who have missed a payment or two in recent years.

For adviser use only. Please note this content has been supplied by our lender partner and as such, is their responsibility. No party shall have any right of action against Legal & General in relation to the accuracy or completeness of the information in this article.