There are still century-old financial institutions eager to offer new mortgage products
Among the behemoths of the finance world, there are still some smaller building societies eager to carve a path with innovative products to increase their client base.
And for a financial institution that’s more than 125 years old, having built a solid reputation for its conservative approach to lending, the Family Building Society (FBS) can boast that it’s making bold strides to entice first-time buyers.
“Probably our flagship is our First-Time Buyer product. And in that we will take a charge over a parent or other family member’s assets, so that we can do a 95% loan that we take a 20% charge over another family member’s asset, cash or property equity,” Keith Barber (pictured), FBS’s director of business development, explained to Mortgage Introducer.
In his estimation, this niche product sets the society apart from the competition at a time when first-time buyers are finding it increasingly hard to join the property ladder due to rising interest rates and house prices that have soared by 14.3% in the last year - the highest increase since 2004.
While conceding the product was not generating huge sums, Barber stressed that it “provides a route to the market” for its target audience. And more.
“It’s got some guarantees built into it to help the first-time buyer feel that they’re not going to put their family’s finances at risk for joining in,” he said. “So if the borrower is made unemployed through no fault of their own, we will pay the mortgage for up to six months.
“They’ve got time to get themselves sorted out and find themselves another job, which probably, in the current economic circumstances, is not going to be that difficult.”
Adapting to market needs is part of the playbook of any self-respecting business, even if, as Barber readily admitted, older borrowers have been the society’s prime target “for as long as I can remember”. And he has been at FBS for more than 19 years.
“It’s become a much bigger part of our business activity. So we’re able to look at the manual underwriting process; we’re able to look at some fairly complicated individual circumstances which aren’t going to fit through a standard sort of high street credit scoring model and take a common sense view on a lending decision, and that tends to seek the older borrower market,” he said.
That often involves borrowers with more complex forms of income, as they have investment or rental earnings, or part-time work while drawing a pension.
A recent report released by the Equity Release Council showed that older homeowners were increasingly taking advantage of rising house prices to boost their retirement funds – a trend the society has been fully aware of for some time now, having created another mortgage product to cater for this need.
“The volume of older homeowners wanting to access capital in their properties has been our meat and drink for the last seven or so years,” Barber said.
The Retirement Lifestyle Booster is a standard mortgage on an ‘interest only’ basis where the client can borrow a lump sum upfront. Its main feature is that the borrower can have control by paying monthly instalments over 10 years. At the end of that period the amount outstanding is the money that was borrowed from it, so there’s no roll up of interest.
Changing attitudes in society had forced a re-think for financial institutions, Barber noted. “If you think back to my parents’ generation, the plan was that you’d retire by 55 or 60. You’d have paid your mortgage off by that and you’d live a happy retirement on your defined benefit. You might live 15-20 years after retirement.
“But now people are probably going to live 25-30 years after retirement. And there’s also been a change in family demographics because people have more complicated family structures and more demands for family support within that. You get to retirement and it’s not that clear-cut 1950s picture.”
He readily admitted the industry had changed “massively”, even in the last 30 or so years. “I think back to the early 1980s when I started. You had a cartel setting the interest rates which were going to be charged and paid and you had queues for mortgage loans which would stretch for months.
“Things have changed hugely beneficially since then, there’s a lot more firms active in the market, there’s much better access to credit and much better developed products.”
While affordability is key, Barber sees higher rates as part and parcel of a continually evolving industry.
“I’ve lived and worked through periods of much higher interest rates, and I think you should never say never to being prepared for payments to go up,” je said. “Yes, there’s a lot of headwinds…there’s the cost of energy and the rising cost of food, but on balance our experience is that people are pretty responsible towards their borrowing - they look at their budgets and they make sensible decisions.”