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The changing residential mortgage market

George Gee

October 27, 2020

housing

George Gee is commercial director at Foundation Home Loans

The mortgage market is currently flying. As I write this – from an internal perspective – daily records of full mortgage applications are consistently being broken and we are entering Q4 on the back of one of our busiest quarters ever. And there are many things for us to be positive about from both a BTL and residential perspective moving forward.

Focusing on the residential space, we’re hearing reports of properties going under offer before they even hit the open market and pent-up demand continuing to fuel the property market. This demand is likely to continue into Q4 and beyond, although we remain fully aware of the ongoing challenges facing our intermediary partners and borrowers.

In terms of lending propositions, there continues to be a huge amount of activity around product launches, repricing and changes to criteria/policy. The impact of such rapid change was highlighted in recent data generated by Knowledge Bank which showed that tightening lender criteria is continuing to affect buyers with small deposits and brokers are struggling to find suitable products. The search for ‘Temporary Maximum LTV Restrictions’ was top of brokers’ lists for the sixth month running, reflecting a year where many lenders have scaled back or halted high LTV lending.

Terms relating to coronavirus were suggested to have ‘dominated’ broker criteria searches for six consecutive months in residential, second charge and bridging loans. In addition, a high number of searches were reported for ‘Covid-19: Furloughed Workers’, a search which has featured prominently throughout the residential market since April, and searches for this term are expected to rise before the furlough scheme comes to an end in October.

As I write this, the Chancellor Rishi Sunak has just revealed a successor to the furlough scheme ‘The Job Support Scheme’ as he bids to avert a winter jobs crisis following tougher restrictions to combat coronavirus. It remains to be seen how this will play out but a variety of support measures are key for borrowers in the current economic climate and the specialist lending market is really stepping up to the plate in terms of providing a range of tailored mortgage options for such borrowers and in meeting these ongoing challenges. We have to be flexible and responsive in our approach and engage with our intermediary partners to initiate the right types of solutions – where possible and in line with responsible lending procedures – to meet the changing needs of many borrowers. This flexible and responsive approach is also true for the ongoing success of many different support measures.

Successful support measures

The latest report from the Intermediary Mortgage Lenders Association (IMLA) suggests that the impact of Covid-19 support scheme closures could be less severe than initially anticipated, with lenders expecting between 0.5% and 5% of borrowers coming off payment deferrals entering arrears. According to the report, lenders expect a further 1.5% of borrowers on ‘payment holidays’ to be able to make interest-only payments, meaning a large majority of borrowers are likely to successfully return to repaying their mortgage. Projections from the Bank of England also show that the number of furloughed workers is expected to fall to one million in October, far below the 9.4 million employees registered in June 2020. However, the report also acknowledged that the true impact of the Covid-19 crisis will only be known once emergency support measures are wound down.

It went on to suggest that if the property market is able to remain robust and resilient beyond the closure of the support schemes and into early 2021, then it could begin to see lenders normalising their criteria. This includes a potential return of higher LTV mortgages, including 90% and 95% products, which would obviously be a positive step in the right direction if the wider economic environment supports such a move.

Resilience

We have seen sustained resilience throughout the mortgage and housing markets over the Summer month’s despite facing some of the most testing conditions ever recorded. The key to this has been the implementation of a joined-up approach across the board towards the protection of borrowers, and it’s good to see that this prolonged effort will continue.

The FCA recently published additional guidance for firms to ensure that consumers who have benefitted from payment deferrals under the current guidance and who still face financial difficulties – as well as those whose financial situation may be newly affected by coronavirus after the current guidance ends – will continue to get the support they need. Firms will also signpost borrowers to the support they need in managing their finances, including through self-help and money guidance, or refer borrowers to organisations that can provide free debt advice if this meets their needs and circumstances.

This final point is a highly relevant one and underlines the importance of the advice process. When it comes to property-related needs, borrowers need to be fully aware of available solutions covering a range of scenarios, and who better to successfully convey this message than mortgage intermediaries?

The importance of specialist lenders

The specialist residential lending market is a multi-faceted one. It is constantly evolving to provide responsible and competitive solutions for a range of borrowers who have found themselves in some extra-ordinary circumstances but who remain credit and mortgage worthy. For example, viable options remain available for people who have recently become self-employed or are newly employed, who are returning to work following furlough, where their income is derived from multiple sources (including property) or where they have suffered from some kind of credit-blip. And this evolution will prove pivotal in meeting a variety of borrowing needs now, and in the future.


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