Feature: Navigating unchartered territory
There is no doubt these past few weeks have been some of the toughest on the mortgage industry in living memory. After three-and-a-half years of waiting for the market to rebound following the Brexit vote, things were finally looking distinctly positive again, with housebuyer appetite increasing and forecasts for a strong 2020.
However, since the Covid-19 outbreak began to hit the UK, the base rate has been cut to the lowest level in history, lenders have withdrawn numerous high loan-to-value products, physical valuations have been halted and brokers have been inundated with enquiries from panicked buyers.
There has been a stream of bad news, culminating in the announcement that the housing market had essentially been ‘put on freeze’ as the government advised against moving home until the lockdown was over. All of this has hit mortgage businesses hard and each area has had to adapt fast to a rapidly evolving situation.
But while no one is burying their head in the sand about how tough the market is at the moment, there are glimmers of light. Struggling borrowers are being offered mortgage payment holidays to lessen expenses until, hopefully, the crisis eases off, and trade body UK Finance says lenders are “ensuring that product transfers continue to be offered to customers offered payment holidays, so that [they] do not revert to standard variable rates or reversion rates”.
The body adds that firms may not be able to provide product transfers immediately while systems issues are worked out, but that “the intention is to continue offers for up-to-date customers”.
In other helpful news for borrowers, lenders are extending mortgage offers by up to three months and the government announced that the court service would suspend all ongoing housing possession action.
Imla executive director Kate Davies says that, despite the challenges, life must go on. And with most of us currently working from home, now is the time to use technology to our advantage.
“Just like other industries, the mortgage market is facing huge challenges as it navigates these unprecedented times. The coronavirus crisis has already brought parts of the housing market to a halt and we will likely continue to see the impact of the virus in any figures for some time to come. However, life goes on and there will be continued demand from consumers, who will want to switch product or provider as they approach the end of their mortgage terms, for instance,” says Davies.
“Along with everyone else, lenders and intermediaries are adapting to this ‘new normal’ of working from home and maintaining social distancing. A number of lenders have implemented new technology platforms and telephony systems to aid remote working and allow intermediaries to continue to submit cases.
“Others are turning to digital valuation tools to work around the challenge of not being able to undertake physical inspections of properties. Advisers too are taking advantage of technology to support their clients through video chat systems and social media.
“Housing plans may be on hold, but the desire to step onto the housing ladder is still an ambition for thousands of people in the UK,” adds Davies.
“It’s far too early to make predictions about the mid- to long-term impact coronavirus will have on the mortgage market and the economy in general. But lenders, advisers and others will continue to make every effort to keep the sector working during this difficult period and ensure it can and will bounce back once the crisis is over.”
Maintaining the market
Twenty7Tec chief executive James Tucker highlights the importance of keeping in touch with clients to offer reassurance and keep the market moving as much as possible.
“The question on everyone’s lips in the mortgage market right now is ‘How do we thrive in these difficult times?’” says Tucker.
“The first thing I would say is that you must be proactive and call your clients. Don’t wait for them to call you. You can save your clients money in a low interest rate environment by securing them a remortgage or product transfer and that cost difference may be all they need to make their personal finances work for the months ahead.”
Twenty7Tec has begun producing daily stats on how the market is performing and the figures have seemed daunting, but Tucker reminds us that there are areas that are still moving and now is the time to embrace technology.
“Although our stats are showing that remortgages are outperforming purchase mortgages, they are still showing too much of a slowdown and brokers need to hold up this part of the market,” says Tucker.
“Equally, those client conversations will give you opportunities to identify if they have any protection needs. Technology is in our DNA at Twenty7Tec, so the transition to working from home for us has been relatively painless.
“For brokers, who are also used to working in a high-performing environment, they’ll need to adapt to their new circumstances and prepare themselves to perform. Embrace the technology that’s at your disposal for ID verification and video calling, and make your interactions as personal as you can – people need that now more than ever. Take time to reflect on what’s in the news and try to get ahead of it.
“Every market change – rate changes, products available, government schemes for pay – all offer opportunities for you,” says Tucker. “What do these changes mean for your market and how can you use that information to flourish in challenging circumstances?”
Many lenders are also adapting to an increased reliance on technology – with in-person property valuations currently not allowed, many are focusing on desktop valuations and automated valuation models where possible. Accord Mortgages is utilising AVMs and that has introduced desktop valuations on some residential and buy-to-let products. Accord director of intermediary distribution Jeremy Duncombe says this will enable it to continue lending on new applications and process those currently in the pipeline.
“We know brokers are under a lot of pressure at the moment, so we hope these clear guidelines will enable them to provide the most accurate information to their clients, and allow our underwriting teams to progress the cases that fall within the guidelines as quickly as possible,” says Duncombe.
Free-to-use broker tool
To further help brokers, mortgage search system Knowledge Bank has created a free online platform where lenders’ criteria changes are tracked – including details on AVMs, mortgage payment holidays and all areas of the market – called the Covid-19 Criteria Live Feed. It also provides a daily email update to the industry.
Founder and chief executive Nicola Firth says: “I’m incredibly proud of the team here at Knowledge Bank.They have stepped up to the challenge, liaised with our contacts at the lenders and created a free-to-use tool for brokers to best advise their clients on each lender’s stance and process.
“We continue with our commitment to support both brokers and lenders in these demanding times and to do everything we can to keep advisers advising.”
While the market was initially taken aback by lenders’ withdrawal of many high-LTV products, the level of empathy witnessed from all parties has been heartening. Each area is struggling and there is a mutual understanding that difficult decisions need to be made in the short term to survive in the long term. Transparency on these decisions is key to maintaining positive relationships.
Some lenders have already done a U-turn on the withdrawal of high-LTV products. Halifax for Intermediaries, for example, announced the reintroduction of products over 60 per cent LTV just a day after pulling them all, bar those for product transfer or further advance.
For lenders, and subsequently the market, survival is about the size of their financial safety net, particularly should movement remain stagnant for some time after the lockdown is lifted.
Mortgage Broker Tools managing director Lewis Lenssen says the base rate cut will profoundly impact lender affordability.
“Those lenders that have been able to pass on some, or all, of the reduction in their products and standard variable rates may be able to lend more to a client as a result.
“It is also worth noting that, in the present environment, some lenders may take a more cautious approach to how they treat self-employed income and variable sources of income. These changes are often made in the background and are not immediately obvious, which can prove a challenge for brokers.”
Lenssen adds that affordability platforms can be an excellent source of information for brokers at this time.
Many positive stories are still emerging, if you look for them. For instance, Lentune Mortgage Consultancy managing director Stuart Gregory has had new offers come through since the lockdown was introduced.
“While as an industry we are rolling with the punches, it’s important that we keep our core actions,” says Gregory.
“Today [26 March] we’ve received two mortgage offers from NatWest, showing that lenders are doing their best in very trying circumstances, and still supporting brokers and their clients.”
Support pages and groups
Other areas of the market are also providing assistance to brokers. Some networks, including Paradigm, Primis, and the Right Mortgage and Protection Network, are offering support pages and groups for advisers, and other organisations, such as the National Association of Commercial Finance Brokers, are offering four months of free membership to brokers.
Paradigm chief executive Bob Hunt says: “With the fast-developing coronavirus situation, we want to reassure all our members that we have robust business continuity measures in place.
“Matrix will be of particular use as it will update each day and show users exactly how lenders are approaching this, their changes to products and criteria, and how advisers can engage with them.”
In the current climate, many homeowners will have questions about repayment holidays, the impact of slashed interest rates, or how an income interruption might impact their ability to secure a mortgage.
As Mortgage Strategy went to press, senior scientists were telling us there were signs of a slowdown in the spread of the virus, albeit slight; and the delivery of tests, which would allow individuals to determine if they had had the virus and were therefore immune, was just days away.
However, there is no guarantee that we will return to normal life for some time to come, so the industry must adapt to survive. And it has proved time and again that it can do just that.