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May 2020 | Market

David Lownds: Keeping up to date is a difficult task

David Lownds is head of marketing and business development at Hanley Economic Building Society

The lending community continues to strike a balance between reactivity and proactivity as we battle our way through extraordinary times.

One of the main challenges is getting to grips with how different types of potential and existing borrowers are being affected, and how we can better support them, both now and an uncertain short to medium-term future.

The market is changing at such speed that even data collated today might be outdated in a few months, or even a matter of days.

However, the data does help us to build a better picture of how different sectors, and the borrowers within them, are reacting and how markets are evolving or adapting.

Let’s not kid ourselves, ‘once in a lifetime’ events are sadly becoming more frequent, and the better prepared we are for a variety of future scenarios, the greater chance we all have of emerging as unscathed as possible.

With that in mind, here’s a brief round-up of data and reports over the past month which may help lending and intermediary communities better understand pre-crisis and present market conditions.

Household finances are at the weakest point since November 2011, according to IHS Markit’s UK Household Finance Index.

The index, which measures households’ overall perceptions of financial wellbeing, dropped to 34.9, its largest monthly decline since it started in 2009. Job security perceptions also hit a record low, whilst incomes from employment fell sharply.

This data was compiled during the first week of April, offering an early indication of the severe impact of the public health emergency.

Although some mortgage applications remain on hold during the COVID-19 lockdown, a recent report from Experian suggested that existing mortgage holders could access savings of more than £5,000 by switching to a different fixed rate offer.

It added that up to 44% of the UK’s 10.8 million mortgages are likely to be on the provider’s standard variable rate (SVR), with only 24% of current or previous mortgage holders remortgaging at the end of their last introductory offer.

Of those that have lapsed into the provider’s SVR, 23% thought remortgaging was too complicated, while 16% had not realised that the SVR would be more expensive.

Mortgage holders in Northern Ireland (52%) and the North East (51%) were said to be the most likely to be sitting on an SVR, while the East, South East and South West regions had the lowest proportion at 43%.

The remortgage market will continue to be a primary source of opportunity for the intermediary market moving forward. Getting closer to clients, in terms of better understanding what might be new or adjusted financial positions, will put intermediaries in a stronger position to review their clients’ remortgage requirements, as well as driving more ancillary business in areas such as protection.

According to research from reallymoving, 75% of those who were planning a move before the crisis still want to move as soon as possible.

A further 18% said they were still hoping to move later this year, and only 7% were now unwilling or unable.

Among those who agreed a deal and were already in the process of buying and selling a property when the lockdown came into effect, 62% intend to use this time to get as far as possible with the process. Three in 10 (29%) have temporarily paused their transactions, 6% are no longer willing or able to proceed and 3% have seen their chain collapse entirely.

The primary concern for buyers and sellers no longer proceeding with their move was said to be that house prices could fall (26%). Other worries included someone in the chain pulling out (17%), concerns over job security (16%) and lost confidence in the economy (16%). Only 4% of survey respondents were concerned about access to professional services.

Before the onset of the crisis, the housing market was experiencing one of the strongest late winter/early Spring markets for some time; whilst it’s difficult to predict the exact impact on house prices and wider economic conditions, this pent up demand bodes well for the future housing market.   

On 14 April, Mortgage Brain reported that the previous week had shown a 49.1% drop in product numbers compared to the nine-week average to 16 March 2020. However, in the following week there were said to be 7,425 products available, a further drop of just 52 (0.1%).

It’s inevitable that product numbers fell as all lenders reacted to restrictions around physical valuations, whilst also tackling pricing uncertainty and service commitments. The logistical challenges facing lenders are all too evident, but the slowing of this dramatic fall in product numbers is encouraging.

With lenders now demonstrating some higher loan-to-value ratio (LTV) capacity, we may have reached an important juncture in terms of the structuring of product ranges and how these are being serviced.

Exactly where we go from here remains to be seen, but there is cause for cautious optimism.