Steve Carruthers is principal mortgage consultant of Iress
We passed the end of Q1 and, astonishing as it may seem, are nearly through H1. These have been good months for mortgage lenders and the end of the year – for most – is likely to be benign in terms of volumes.
There are informal reports of softening pipelines among estate agents – buyer registrations are normalising – but even this is only to the extent of numbers approaching something considered more normal. The market threw challenges at the lending industry, and by and large it has coped much better than many feared all those months ago.
What we have learned, if we needed reminding, is that the market is generally driven by the supply side, and government holds the levers that drive the market.
This year’s stellar volumes to-date have been underpinned by confidence generated by fiscal aid in the shape of the mortgage deferral scheme, furlough and, of course, the tapered end of the stamp duty holiday. All these things have kept people in homes and enabled them to move.
Indeed, the continued support for higher loan-to-value (LTV) lending, as well as the self-build and new-build sectors, means that many markets are set to continue with state support in the coming months and years.
There is the knock-on effect of non-fiscal measures too. The successful vaccination programme, which is effectively the UK’s economic policy, has underpinned the recovery.
For their part, lenders have adapted to these dynamics, but not all this has been achieved without considerable costs to service. Application times have extended as the self-employed applicants that make up so much of the UK’s growing gig economy have been impacted by the time and length of underwriting assessments.
Lending criteria have changed, documentation requirements have grown in some markets, and confidence needs to be rebuilt.
This will not happen overnight, as many still have an eye on the closure of the furlough scheme. It would be naive to assume, too, that only operational efforts were soaking up resources.
Projects roll on; the transition of back books to LIBOR, proving how you implement negative interest rates, developing or purchasing new platforms, application programe interfaces (APIs) and robotics all figure on the to-do list.
This last point probably tells us where the area of focus is for efficiency. We might have assumed that, as a result of the pandemic, investment would be targeted at dealing with lending as it comes into the business. Yet already origination has begun to dominate thinking.
There are some good reasons for this. House purchases will decline over the coming months, and you need only see the impact of the end of the Land & Buildings Transaction Tax holiday to understand how that has affected transactions north of the border.
While it is by no means imminent, or even desirable politically, the spectre of inflation looms. If interest rates rise, the remortgage and product transfer markets will undoubtedly grow as stretched borrowers seek to refinance.
Declining transactions and the presence of so many lenders will mean a smaller cake will need to feed just as many mouths. Differentiation then will have to be in service if it is not a pure price or risk play. Capital remains a constraint for many smaller lenders, even if retail and wholesale mortgage funding is not, and so moving up the risk curve does not appear to be the smart play.
Technology, applied intelligently, is about freeing up people to focus on the right things. This is not just about digitising bad processes, but about moving the business on with the right digital processes.
We need to ask ourselves, are the processes we digitise the right ones in the first place? Do we need to ask these questions of brokers if we are using external data feeds? Do external data feeds help or hinder our decision making? Are our interfaces with third parties the right ones, and are they the right third parties?
Two years ago, few would have imagined we would be where we are now – or that so much would go so well in terms of coping with the pandemic – but lenders are already eyeing the future, and it’s clear that tech is the service differentiator.
The trend of technology – and our growing reliance on it – pre-dates the pandemic, but it was a key part of helping get us through it, and will play a massive part in what happens next.