Disruption in the equity release market – latest Knowledge Bank Tracker results reveal
The equity release market showed the most change across all seven categories recorded by Knowledge Bank, with ‘Maximum Loan Amount’ being the only consistent search in the top five results. The disruption to the market suggests homeowners are wishing to release equity for a number of reasons and this is why we see so much disruption to the market. With limited high LTV’s from mainstream lenders on the table for younger borrowers, many homeowners may be releasing equity in order to help younger family members get onto the property ladder.
A spike in searches for ‘Property with Annex / Outbuildings / Land / Acreage’ was the third highest search result. This has undoubtedly been boosted by coronavirus impacting consumer habits, as demand for intergenerational living increases due to the pandemic and people living apart from family. A number of people took their elderly parents or relatives out of residential homes during lockdown and brought them into the family home amid concerns of the spread of the virus becoming prevalent inside such institutions. We are now seeing the broader impact this is having on the housing market, as Knowledge Bank’s statistics show that people are considering building onto existing property in order to accommodate intergenerational living.
In the residential market, ‘Temporary Maximum LTV Restrictions’ is once again in the top five search results. Lenders continuing to tighten criteria is clearly still a significant issue for people with smaller deposits. While there is much news about lenders introducing or pulling new products this shows that LTV restrictions are having a very real impact on borrowers and their ability to buy or remortgage.
‘Maximum Age at End of Term’ takes the top spot in the residential market. This could be indicative of the increase in the number of divorces due to lockdown; this could then mean people are older getting back on to the housing ladder.
The residential market hosts ‘Income Multiple used for Affordability Assessment’ for the first time, signifying that people are worrying about their affordability; this won’t be helped as the furlough scheme comes to an end this month. This may also explain why, in the second charge market, a spike in searches for ‘Married Couple Application in One/Single Name’ appears. This could be as a result of one partner having poor credit or having been placed on furlough and lenders tightening their leniency with calculating furloughed income.
People are clearly also using second charges to raise finance. The top three searches being ‘Maximum LTV / Loan to Value,’ ‘Covid-19: Temporary Maximum LTV Restrictions,’ and ‘Defaults – Registered in the last 3 years.’ This shows second charge loans being predominantly used by people facing financial problems.
Buy-to-let (BTL) saw the most consistency, with the top five searches remaining unchanged in September. ‘First Time Landlord’ takes the top spot this month. As lenders tighten their appetite for risk, first-time buyers or renters struggling to get onto the property ladder may consider buying BTL properties instead of their own home. This is due to the fact that lenders will take rental value into account to assess affordability instead of homeowner income.
Brokers kept ‘Lending to Limited Companies’ in the top five searches for September. Transferring to a limited company means landlords can benefit from favourable tax treatment of their rental income. When coupled with the stamp duty holiday ending in March 2021, it makes it a lot more cost-effective for landlords who haven’t yet done so, to transfer their properties to a limited company, while saving up to £15,000 on stamp duty they may otherwise have paid.
Matthew Corker, lender relationship manager at Knowledge Bank, commented: “The overarching theme here is that people are needing to borrow more money at the very point that lenders are tightening criteria. The equity release market saw the highest levels of disruption in September, which is due to changing consumer habits as a direct result of Covid-19. The shortage of high LTV mortgages offered by lenders could well be leading to parents or relatives releasing equity to help younger family members get onto the ladder.
“As we look forward, with furlough coming to an end, we may see more searches for people that have defaults, like we are seeing in the second charge market now.
“We may also see more people buying property with elderly relatives to avoid putting them in care homes, and generations joining forces in order to get younger relatives onto the property ladder. Perhaps intergenerational living could soon become the new normal.”
| RESIDENTIAL | BUY-TO-LET | SECOND CHARGES | EQUITY RELEASE | |
| 1 | Maximum Age at End of Term | First-time landlord | Maximum LTV / Loan To Value | Non borrowing occupiers |
| 2 | 2. COVID-19: Temporary Maximum LTV Restrictions | Lending to Limited Companies | COVID-19 : Temporary Maximum LTV Restrictions | Maximum LTV / Loan to Value
|
| 3 | Self-employed – 1 year’s accounts | Requirement to be a Homeowner | Defaults – Registered in the last 3 years | Property with an Annex / Outbuildings / Land / Acreage
|
| 4 | Help to Buy Equity Loan Scheme | Holiday Lets | Married Couple Application in One/Single Name | Maximum Loan Amount
|
| 5 | 5. Income Multiple used for Affordability Assessment | Minimum Income – Interest-Only / Part-and-Part Single Applicant | Maximum Number of Applicants
| Interest Payment Roll Up Option
|
| SELF-BUILD | BRIDGING | COMMERCIAL | |
| 1 | Maximum LTC – Loan to Cost | Regulated Bridging | Semi-Commercial Properties |
| 2 | Interest Only | Minimum Loan | Maximum LTV for Commercial Investment |
| 3 | Capital Raising for Purchase of Land | Maximum LTV | Commercial Owner Occupier |
| 4 | Custom Build – Lend Against/Finance Purchase of Land | COVID-19: Temporary Maximum LTV Restrictions | Minimum Loan Amount |
| 5 | Stage Payment Type – Advance | Heavy Refurbishment | Mixed Use Properties/Part Commercial |