The rising cost of homeownership presents a challenge for buyers across the market, but is particularly acute for first-time purchasers.
Higher property prices and traditional loan-to-income (LTI) affordability assessments can make it difficult for buyers to secure their first mortgage, particularly as many are at an earlier stage of their career and on lower incomes.
These more rigid lending models don’t necessarily reflect the financial realities of borrowers today, where many people have more variable incomes, often from multiple sources. There may also be support from parents or other family members when it comes to helping people onto the housing ladder.
As a lender active in this space, we recognise a one-size-fits-all approach will not meet the needs of everyone in a more diverse mortgage market. With a greater need for flexible solutions, we have evolved our lending proposition to offer a range of tailored – sometimes known as split-term – mortgage options, which can help buyers meet affordability challenges at various life stages.
A tailored approach
This feature is available across our mortgage range, which allows multiple applicants to share the cost of the mortgage but with different repayment terms. This is particularly valuable in joint borrower sole proprietor (JBSP) arrangements – also available as an optional element within our core product range – where a younger borrower can take on the mortgage over a longer term, while a supporting applicant, such as a parent, contributes over a shorter period.
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Typically, the younger borrower (or borrowers) would take out a standard 20-25-year term, but the older borrower might be on a shorter term; for example, 10 or 15 years if they are approaching retirement and don’t want financial commitments to extend beyond this. Having this additional underpinning, even on a more limited term, can help younger borrowers with affordability calculations while not imposing undue financial constraints on older family members.
JBSP is an option often primarily aimed at parents who want to help children onto the property ladder. This includes divorced partners, where ex-partners can opt for such an approach with their former spouse to ensure the family home does not have to be sold, maintaining stability for children and minimising disruption.
Another growing trend is for friends or siblings to pool resources to buy together, helping them escape the ‘rent trap’ and start to build up equity in their own names. Here, a tailored-term option can be useful in reflecting the different financial circumstances and incomes of applicants.
Not only do tailored terms enable parents to help children, they can also be used by younger family members to support older homeowners with later life borrowing, helping them to remain in their homes. The products we offer in this space come with flexible lending solutions for a wide range of borrowers.
There is clearly a need for such products in today’s changing market, where rising house prices have made higher income multiples less viable, and lenders are rightly cautious about risk. Alternative solutions like tailored-term provide a balanced approach, offering borrowers the support they need without resorting to unsustainable lending practices.
At the same time, there is also a need for more innovative mortgage solutions to meet rising demand for flexible lending options in the growing later life lending sector. Many borrowers in their 50s and 60s still need access to mortgage products and aren’t necessarily on track to be mortgage-free by their planned retirement date.
Split-term options can help bridge the gap between standard mortgage products and complex later life lending solutions.
Broker awareness
Advisers have a key role to play in finding the most appropriate mortgage solution for borrowers. This is particularly true when borrowers don’t fit standard income or affordability criteria.
However, despite the advantages of split-term, there may still be a tendency to default to a traditional mortgage structure, perhaps overlooking the flexibility that innovative solutions like these can provide.
In that sense, we’re committed to working closely with adviser partners, raising awareness of how split-term works in practice, and arming them with the knowledge and tools they need to offer a wider array of bespoke mortgages to their clients. If lenders and advisers work together, more buyers can access the financing they need to achieve homeownership, even in challenging market conditions.
