The UK lending landscape is an ever evolving and dynamic place but there are times when it captures the attention more than others.
The residential marketplace has become particularly ‘interesting’ in recent times after many years of a historically low interest rate environment which saw lenders constantly shaving margins to generate volume and gain/consolidate market share.
When I say interesting, I could easily replace this with complex as a host of recent health, political and economic scenarios have resulted in many people facing unprecedented financial challenges with a growing number of credit-worthy homeowners and potential first-time buyers (FTBs) falling beyond more mainstream lending policy and criteria.
Rising house prices also continue to generate pressure on FTBs. According to the latest figures from HM Land Registry’s house price index, house prices in July grew 15.5% on an annual basis.
This took the average price of a property in the UK to £292,118. Although the number of transactions seen over the summer have dwindled, house prices are expected to remain robust as supply issues continue and homeownership aspirations remain strong.
In light of the ongoing cost of living crisis, affordability remains one of the most pressing issue for borrowers and lenders, and this is placing an even greater spotlight on risk, underwriting, technology and service.
For some lenders, Hanley included, the past few years have been a transitional time from a technology perspective as we integrate new systems and procedures to arm us with the capabilities, processes and flexibility to better service the needs of our borrowers and our intermediary partners going forward.
We also have to be fully aware of lending habits and trends to position ourselves accordingly. Looking at recently released data from the Bank of England’s Mortgage Lenders and Administrators Return statistics for Q2, this always offers plenty of useful insight. This was especially evident at the higher income multiple lending and LTV bands.
The report outlined that during Q2, the data collated by 340 lenders and administrators showed that the share of lending to borrowers with a high loan to income (LTI) ratio rose by 0.9 per cent to reach 50.5 per cent of borrowers.
However, this was a decline of 0.9 per cent compared to the same period last year. For context, the BoE defines high LTI lending as lending to borrowers with a single income at a ratio of four or above or to joint borrowers with an LTI of three or above.
In addition, high LTI lending to single income borrowers accounted for 11.3 per cent of gross mortgage lending in Q2, a 0.5 per cent fall on Q1. High LTI lending to joint income borrowers rose by 1.4 per cent to 39.2 per cent quarter-by-quarter and accounted for the largest share of high LTI lending since records began.
When it came to higher LTV lending, the share of mortgages with loan-to-value ratios exceeding 90 per cent rose by 0.5 per cent to 4.5 per cent, the highest seen since Q2 2020. This was also up by 2.4 per cent on the same period in 2021.
Within this, the share of mortgage advances at 95 per cent LTV remained flat on Q1 at a 0.2 per cent share. The proportion of mortgages with LTVs exceeding 75 per cent increased by 2.7 per cent to 38.2 per cent, down 1.5 per cent down on last year.
There are no hugely significant changes of note within these figures but there are some subtle shifts that we, as lenders, need to be closely monitor.
It’s no secret that every lender has their own approaches to affordability and ways in which they underwrite business to meet their lending requirements.
However, one consistent within this is how vital is it for a range of borrowers to have access to options at higher LTV bands, provided responsible lending boundaries are not crossed.
David Lownds is head of sales, marketing & business development at Hanley Economic Building Society
