While there’s a general feeling that the market is starting to stabilise as interest rates edge down and more people get settled onto new mortgage rates, there’s no escaping the fact that affordability remains a challenge for many.
The latest UK Household Finance Review acknowledged some signs of easing in the forces constraining affordability, namely high prices, high interest rates and cost-of-living pressures. These positive movements have enabled some customers at the margins to secure the mortgages they need.
However, the report concluded that there is still some way to go to balance the scales enough for the significant numbers of people who have been struggling with affordability for the last 12 to 18 months.
Any easing of pressures has also yet to be reflected in the arrears and possessions data from UK Finance, which remains largely unchanged, although the number of possessions rose 8% between Q1 and Q2 this year.
This is supported by the regular Office for National Statistics (ONS) bulletins, where cost of living is still cited as the most important issue facing the UK today. A total of 86% of people reported this in the August survey.
We recently heard figures from a debt charity which said 40% of the households it works with can’t manage household costs, and a third of those are using credit to pay their mortgages.
From our own experiences, affordability is still one of the main reasons for applications being declined. While some of that is due to the supporting documents we receive not always lining up with initial information, we do know that cost of living pressures continue to have an impact.
We have seen an increase in applications for impaired credit, for example, and debt consolidation is the most common reason for remortgage capital raising.
What does this mean for lenders and brokers?
It’s clear we’re not out of the woods yet, and mustn’t take our foot off the gas when it comes to ensuring our mortgages are as accessible as possible. This means constantly reviewing products and criteria and doing what we can to help people – even when they don’t fit a specific mould.
To that end, we always track trends in our declines, and seek feedback from brokers. There are often patterns where we’ll see a spate of declines in a particular area. It’s then a case of working out if this is because something needs improving in the application process, or if a criteria change might help.
This year, we’ve made several changes as a result of product and criteria reviews, which are all serving to boost affordability.
We’ve launched new impaired credit mortgages on the residential side, a non-standard credit mortgage on the buy to let side, introduced a five-year fixed term retirement interest-only mortgage and launched our new Joint Borrower Sole Proprietor Deposit Lite proposition to help first time buyers with both deposit and affordability challenges.
We have also made many changes to criteria, including:
● We can now consider overtime and commission up to 100%, subject to a good track record.
● Up to 100% of Town Allowance can be considered, which extends to more areas beyond a London weighting.
● Up to 100% of car allowance can be considered.
● We will now accept gifted deposits from siblings, grandparents, aunts and uncles, as well as parents.
This is in addition to many other areas where our criteria are designed to be as flexible as possible. For example, we will consider up to 100% of income from second jobs, and a mixture of relevant income streams.
When it comes to interest-only mortgages – which can be a popular affordability solution as long as a viable exit strategy is in place – we don’t require minimum incomes and will only stress the loan on an interest-only, rather than repayment, basis.
A common-sense approach to mortgage applications
In addition to constantly reviewing data and trends to make sure our mortgage solutions reflect the needs of today’s homeowners and buyers, we also adopt a completely bespoke and manual approach to underwriting.
We therefore strongly encourage brokers to simply pick up the phone to us if they have a case they are not sure about.
There have been many occasions where we have been able to help someone realise their homeowning dreams when other doors were shut, or simply to get a new deal when they’ve failed elsewhere due to changing circumstances.
By working together, we can continue to keep the market moving while affordability challenges persist.
Claire Askham is head of mortgage sales at Buckinghamshire Building Society
