We have celebrated the sacrifices of the armed services since King George V organised the first Armistice Day on 11th November 1919 but a century later, how can the financial industry really support them?
Today gives the nation an opportunity to reflect on the men and women who protect our interests both home and abroad and we thank them for their commitment to us. As citizens of the UK, they are often deployed outside of the country and as well as sacrificing their relationships with family and loved ones, they are pulled away from community ties, a stable routine, which us mere City workers have come to enjoy, and importantly their ability to obtain competitive mortgage finance.
There is no doubt that the armed forces are at a huge disadvantage when seeking to secure a mortgage. This may explain the low rate of home ownership in the Armed Services. When comparing home ownership figures, forces personnel in contrast to the general population employed in similar socio-economic groups are significantly less likely to own a home.
Only 35% of junior ranks own a home compared with 65% of those in the equivalent ‘intermediate’ group. It is worse in the Army with only 27%.
Around 70% of officers own a home compared with 90% of those in an equivalent ‘higher managerial’ group.
Approximately 43% of Service personnel actually own their own home.
Home ownership is a significant issue for the Armed Forces, with levels well below those of wider society. As a nation, we should be concerned that departing personnel frequently indicate that their desire to own a home is a key reason for their decision to leave.
The problem stems from the fact that members of the armed forces may be required to relocate to several postings in the UK and abroad, during their time in service. Many have a British Forces Post Office address, which is used for the delivery of mail around the world. These addresses do affect their credit rating.
The use of automated credit systems and automated underwriting has an adverse effect on this group of borrowers and forces personnel find it very difficult to find lenders that are willing to take into account their circumstances.
The Council of Mortgage Lenders has already liaised with the Ministry of Defence to ascertain whether more can be done. It has reported that it has made representations to the providers in an attempt to ensure staff are aware of the importance of looking after these applicants.
It is our belief at Capital Fortune that the vast majority of UK lenders do genuinely want to help the military but their systems often mean that a British Forces Post Office address causes the case to automatically decline as credit history on that address is impossible to confirm.
An additional problem is that when serving overseas, forces personnel are often eligible for overseas allowances. These can cover a range of benefits including accommodation, travel and child payments. This raises issues regarding the long term sustainability of such income as the additional income may cease on return to Blighty.
Lenders’ systems are not built to consider all the different types of military remuneration. For example, they will have a standard basic salary, an overseas award but several other allowances making up the pay slip. It has to be accepted that lenders with their requirement to ensure a mortgage is in the long term, both suitable and affordable cannot just accept the total income because overseas awards may not be sustainable. The package can leave a range of issues that are quite unusual for automated systems to fathom, but that is where access to an underwriter directly would be helpful.
The issue of proper and appropriate underwriting does not just relate to those serving overseas but also to those stationed in the UK as repeated moves of base can also cause problems in building up a credit history. Soldiers particularly, can have four or five addresses in the last three years and, in the middle, they could have had a tour overseas. It causes them huge issues.
There are some lenders who will give special dispensation for the armed forces and the smaller building societies have taken the initiative on this issue. We believe the ability to manually underwrite forces personnel should be across the board and the major banks, particularly those owned by the taxpayer should really take the lead.
It would be a great gift to the nation, if lenders unilaterally on seeing a BFPO address or military application automatically agreed to manually underwrite each and every case. It would be so much better than simply wearing a poppy to demonstrate support, but instead would indicate a total commitment to assist our armed forces. By giving our troops this extra help they will be more able to set down roots and get onto the property ladder.
The Government is well aware of the issues faced and is itself committed to rectifying the problem ensuring that personnel and their families are not disadvantaged by their service. It has recently set aside nearly £200m towards the new Forces Help to Buy scheme which will come into effect next April. This scheme allows both servicemen and women to borrow a deposit of up to 50% of their salary, interest-free allowing them to buy their first home.
Mortgage lenders still however need to approve their loan.
The proposal for increased home purchase support has understandably, proven extremely popular with service personnel during the initial consultations. There is growing evidence to suggest that such a plan would support wider retention aims within the military. The advance is to repayable over 10 years, ensuring repayments are affordable and do not impact on the individual’s borrowing power.
We are clear that it is not just help with a deposit however which is required.
National lenders operating automated systems should give the greatest gift to our Forces that they are able. This is minutes of an underwriter’s personal time allowing them to manually underwrite a case.
A small sacrifice in exchange for months if not years on the battlefield.