Lender flexibility crucial for new build prospects

House building is having a moment. While the rate at which we produce new homes has been underwhelming for some time, the new government has immediately promised not only greater numbers but the planning reform necessary to deliver them.

It’s an exciting time, particularly when you consider that the average price of new-builds is up substantially on last year, likely as a result of higher levels of demand from prospective buyers.

I would argue that lenders have an enormous role to play in the future health of the new build market. What’s more, it’s only by being more flexible that we will be able to help this segment reach its potential, opening up new-build homes to a larger proportion of aspiring buyers.

A raw deal for new build properties

One area where lenders can do more to support the new build market lies in the LTVs on offer.

All too often there is a significant disparity between the maximum LTVs achievable on older properties and new housing stock. This inevitably dents the sums that prospective buyers can raise, and given the price premium that new build properties already command, may mean that some buyers are excluded altogether from purchasing new builds.

Obviously, it’s crucial for lenders to be responsible in their activities, and there can be understandable reasons for setting specific LTVs for certain property types. But if we are to see this segment of the market flourish, then it’s important for lenders to boost the LTVs on offer for new-build homes and flats wherever possible.

Doing more on deposits

As brokers will know only too well, one of the main hurdles faced by any prospective buyer is the deposit.

This situation can be even more pronounced on new-builds, given the more limited LTVs on offer. These inevitably mean that the buyer will need to set more money aside themselves for a purchase.

However, flexibility from lenders around the deposit can ease the burden here, and make the path to new-build ownership a little easier.

For example, it would be welcome if lenders were more open to cash incentives offered by the developers. These can prove invaluable for hopeful buyers trying to make the sums add up, but I know some brokers are left frustrated by the way that such incentives can play havoc with the calculations of the lender around what they are willing to offer.

Similarly, with so many potential buyers having to look to loved ones for financial support around deposits, lenders need to be as flexible as possible around the source of that deposit. Limiting it to solely parents, or even just blood relatives, can put the brakes on the buying aspirations unnecessarily.

The Help to Buy scheme was clearly incredibly helpful when it comes to providing a boost to buyer prospects on new build homes. But with the scheme now a thing of the past, and little sign of any replacement, it falls to lenders to be more flexible around deposits and ensure that potential purchasers are still able to access the new build market.

How much can I borrow?

It’s no surprise that new-build homes come at a premium. There are so many likely benefits that come from being the first owner of a property, from the lack of a housing chain to the likelihood of improved energy efficiency and lower upkeep costs.

It’s worth remembering that it’s an attractive asset class for lenders too, given the higher quality of the property, the reduced likelihood of structural impairments emerging, and of course the improved energy efficiency tallying nicely with ambitions the lender may have around reducing the carbon intensity consumed by assets on their loan book.

But the purchase price premium can prove a problem for some hopeful buyers. Given the higher asking price, purchasers will want to be clear about the absolute maximum they can borrow, and again this is an area of potential improvement for lenders.

The truth is that higher loan-to-income (LTI) levels will be appropriate for certain clients, such as those with higher salaries. Innovating around LTI caps, and being more flexible with those who can afford it, would prove a real boon to new-build sales.

Working closely with brokers

Flexibility is going to be absolutely vital in making it easier for potential purchasers to obtain new-build homes.

But so too is working closely with brokers, making use of their feedback around where changes can be made to products and criteria in order to deliver for greater numbers of new-build buyers.

This is an exciting time for the sector, with the coming years hopefully set to see a real uptick in housing production. That will only make a real difference though if lenders are sufficiently flexible to support hopeful buyers secure the keys to a new-build home.

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