New build and other incentives
The New Build Mortgage Lending Challenge Adrian MacDiarmid
1
The next 20 minutes
•
A bit about Barratt Developments
•
New Build – why is it important?
•
Why are First Time buyers been squeezed out?
•
The solutions- now and in the future
2
A little about us – Key facts H1 2010/11
3
Investment in partnerships and sustainability -25% of production is for RSLs and Local authorities We are committed to our partnership with HCA and work with them to produce sustainable mixed communities using the most advanced technologies in construction and incorporating energy efficiencies such as PV Cells and rainwater harvesting
We regenerate run down districtsover 900 units in Barnet , located in distinct neighbourhoods each designed by separate architects, maintaining existing mature trees and planting new stock
4
Contributing to the community-Mandale Park, Stockton
• 800 800 Homes, New community facilities and a new park
Mixed Tenure Community
Building Skills programme for young people
5
Investment in design and Quality
•
Q17 Creating Great Places to Live
6
Good security for lenders?
•
Quality product that customers like to live in
•
Lower running costs
•
NHBC Certificate
•
5 year warranty
7
So what’s the problem? Lack of Competition stifles innovation 2009-10 92% of applications through approved brokers went to 4 lenders 86% Year to date 2010-11 driven by strategy of evolving local partnerships with regional building societies
Lack of Common sense underwriting
8
We understand that lenders have their own challenges
•
EU Regulation
•
Basle 3 Capital Requirements
•
Repayment of debt to government under Special Liquidity Scheme
•
Mortgage Market review
9
Discrimination against New Build in Loan to Value Criteria Lender
Normal Max LTV
New Build House LTV
New Build Flat LTV
Santander/Abbey
90%
90%*(80%)
80%*(70%)
Lloyds Banking Group
90%
80%
80%
HSBC
90%
75%
75%
Nationwide
90%
85%**
75%**
Northern Rock
90%
85%
70%
RBS
90%
80%
75%
Woolwich
85%
85%
85%
**Second hand valuations * FTBs only
Buy To Let Loan to Value Criteria Lender
New Houses LTV
New Flats LTV
Normal LTV
Birmingham Midshires
65%
65%
75%
Coventry
70%
50%
70%
Kensington
65%
65%***
85%
NatWest
65%
65%
75%
Northern Rock
70%
70%
70%
Paragon
75%
75%
75%
Platform( Co-op)
75%
n/a
75%
TMW(Nationwide)
80%**
n/a
80%
Woolwich
60%
60%
60%
** Second hand valuation policy( owned by Nationwide) *** Maximum of One flat per Development
Completions Houses v Flats
12
Lending Losses in New Build
•
Fraud
•
Inflated prices driven by excessive cash incentives
•
Introducer payments
•
Cavalier lending processes and underwriting
13
Credit & Risk is backward looking
14
The case for the defence
•
Transparency that exceeds CML requirements driven by a cultural shift
•
The ability to provide a controlled distribution strategy
•
Shift in underwriting and credit scoring means that the past is not necessarily a guide to the future
•
New Homes can help to reinvigorate the market for First Time Buyers
15
16
Our current solution
Shared Equity
18
The challenge- life without shared equity?
Top Up Loans
Costs of a 95% loan
£100,000 purchase price £80,000 mortgage at 4.29% 25 years
£435 per month
£95,000 mortgage at 5.99% 25 years
£611 per month
£15,000 in effect costs
£176 per month
About the same as a £15,000 top up loan over 12 years at 10%
21
Parental Support
Mortgage Indemnity
Weaning ourselves off Shared equity
•
£200,000 Purchase Price
Top Up loan Total Cost
£1228 per month
95% Loan
£1223 per month (only available on second hand)
85/15 Shared equity Total Cost
£ 949 per month
The solution-Changing attitudes through engagement and greater understanding
25
1
The next 20 minutes
•
A bit about Barratt Developments
•
New Build – why is it important?
•
Why are First Time buyers been squeezed out?
•
The solutions- now and in the future
2
A little about us – Key facts H1 2010/11
3
Investment in partnerships and sustainability -25% of production is for RSLs and Local authorities We are committed to our partnership with HCA and work with them to produce sustainable mixed communities using the most advanced technologies in construction and incorporating energy efficiencies such as PV Cells and rainwater harvesting
We regenerate run down districtsover 900 units in Barnet , located in distinct neighbourhoods each designed by separate architects, maintaining existing mature trees and planting new stock
4
Contributing to the community-Mandale Park, Stockton
• 800 800 Homes, New community facilities and a new park
Mixed Tenure Community
Building Skills programme for young people
5
Investment in design and Quality
•
Q17 Creating Great Places to Live
6
Good security for lenders?
•
Quality product that customers like to live in
•
Lower running costs
•
NHBC Certificate
•
5 year warranty
7
So what’s the problem? Lack of Competition stifles innovation 2009-10 92% of applications through approved brokers went to 4 lenders 86% Year to date 2010-11 driven by strategy of evolving local partnerships with regional building societies
Lack of Common sense underwriting
8
We understand that lenders have their own challenges
•
EU Regulation
•
Basle 3 Capital Requirements
•
Repayment of debt to government under Special Liquidity Scheme
•
Mortgage Market review
9
Discrimination against New Build in Loan to Value Criteria Lender
Normal Max LTV
New Build House LTV
New Build Flat LTV
Santander/Abbey
90%
90%*(80%)
80%*(70%)
Lloyds Banking Group
90%
80%
80%
HSBC
90%
75%
75%
Nationwide
90%
85%**
75%**
Northern Rock
90%
85%
70%
RBS
90%
80%
75%
Woolwich
85%
85%
85%
**Second hand valuations * FTBs only
Buy To Let Loan to Value Criteria Lender
New Houses LTV
New Flats LTV
Normal LTV
Birmingham Midshires
65%
65%
75%
Coventry
70%
50%
70%
Kensington
65%
65%***
85%
NatWest
65%
65%
75%
Northern Rock
70%
70%
70%
Paragon
75%
75%
75%
Platform( Co-op)
75%
n/a
75%
TMW(Nationwide)
80%**
n/a
80%
Woolwich
60%
60%
60%
** Second hand valuation policy( owned by Nationwide) *** Maximum of One flat per Development
Completions Houses v Flats
12
Lending Losses in New Build
•
Fraud
•
Inflated prices driven by excessive cash incentives
•
Introducer payments
•
Cavalier lending processes and underwriting
13
Credit & Risk is backward looking
14
The case for the defence
•
Transparency that exceeds CML requirements driven by a cultural shift
•
The ability to provide a controlled distribution strategy
•
Shift in underwriting and credit scoring means that the past is not necessarily a guide to the future
•
New Homes can help to reinvigorate the market for First Time Buyers
15
16
Our current solution
Shared Equity
18
The challenge- life without shared equity?
Top Up Loans
Costs of a 95% loan
£100,000 purchase price £80,000 mortgage at 4.29% 25 years
£435 per month
£95,000 mortgage at 5.99% 25 years
£611 per month
£15,000 in effect costs
£176 per month
About the same as a £15,000 top up loan over 12 years at 10%
21
Parental Support
Mortgage Indemnity
Weaning ourselves off Shared equity
•
£200,000 Purchase Price
Top Up loan Total Cost
£1228 per month
95% Loan
£1223 per month (only available on second hand)
85/15 Shared equity Total Cost
£ 949 per month
The solution-Changing attitudes through engagement and greater understanding
25
