THE NEW MORTGAGE LANDSCAPE.
By Mark Hollands, Head of Sales and Distribution, Bluestone Mortgages
The phrase ‘unprecedented times’ is usually associated with very rare occurrences. Still, I seem to see the words uttered far too often of late.
I recall reading an article in February 2020 where it was predicted that broker mortgage market share could plunge to 50% or lower by 2030 as lenders harness data and technology to target customers directly.
Fast forward a little over two and a half years, and these predictions have not aged well as consumers are in need of professional advice more than ever as we navigate our way from the pandemic through to the current cost of living crisis and beyond.
Inflation has since reached double-digits, mainly down to the war in Ukraine which forced the Bank of England to increase rates for the first time since August 2018.
Now, of course, this is not quite the inflation busting tool that it once was, with around three-quarters of all mortgages on a fixed rate, but whilst borrowers rushed to secure new rates before the inevitable hikes, it was great to see lenders adapt and bring forward the dates to secure a product transfer.
In the meantime, we had to suffer weeks of doom and gloom predictions around energy prices whilst our government elected a new leader, thus leaving millions of people wondering how they would pay their heating bills this winter (I’ll come on to that later).
So when in early September, the long and arduous process of electing our new Prime Minister was complete, we looked forward to the mini-budget with bated breath to find out what help would be at hand to see households through the cold months ahead and hopefully, peg inflation down a few notches along the way.
We had to wait a few extra days whilst the UK and the world paid their respects to Her Majesty the Queen; however, what followed the mini-budget was a week few of us in the mortgage industry will forget for a while.
As a specialist lender funded by the capital markets, the rise in swaps over the past year has been challenging as they rose from around 0.5% one year ago to over 5.5% following the Chancellor’s unprecedented (you see what I did there) announcement.
This has made it incredibly difficult to price effectively as these steep hikes in swap rates have seen margins eroded overnight hence many lenders temporarily ceased taking in new applications until the markets, who had little confidence in the chancellor’s vague plan that increased tax receipts from economic growth would fund these cuts, settled down.
So what’s next? I think the last couple of years have shown that it’s very difficult to predict what is around the corner but this is what we do know.
UK house price growth has slowed a little of late, having risen 8.3% in the last 12 months, but demand is still holding up, and growth is expected to slow, not fall.
And so, with the perfect storm of rising house prices, interest rates and inflation, with wages failing to keep pace, the affordability challenge is not going away anytime soon. Lenders will therefore need to innovate to find ways to solve this challenge but still demonstrate they are lending responsibly.
Greater flexibility in this area has been given as the Bank of England recently abandoned the 3% stress test limit in August. However, it remains to be seen how quickly, or indeed if at all, lenders will relax criteria in this area given the current economic conditions.
We do however, have some scope with LTI ratios and here at Bluestone Mortgages, we recently took advantage of this by allowing potential borrowers to exceed the 4.5x LTI cap when they can demonstrate that their new monthly mortgage repayments are equal to, or less than their current mortgage / rental payments and any outstanding debt which is to be consolidated.
There are still many challenges that face us in the months ahead and touching on my original point, brokers are going to be in high demand due to a rise in potential borrowers finding themselves in more complex situations such as having non-standard income, the need for later life lending, or perhaps they have been turned down by mainstream lenders because they simply couldn’t afford to pay those energy bills this winter.
Specialist lenders thrive by adapting and evolving their propositions to meet the demand left behind by the vanilla risk appetite of the High Street. We have helped thousands of borrowers who have found themselves in financial difficulty through no fault of their own, whether due to divorce, sickness, or loss of income as a result of the pandemic.
We are ready for the rise in specialist lending. Are you?
