It’s certainly shaping up to be another interesting year in the mortgage market. We’ve faced ongoing challenges, both in the wider world and the UK economy.
Stamp duty incentives for first-time buyers (FTBs) were removed in March and interest rates haven’t come down as quickly as expected. Growth and inflation continue to prove challenging and there has been recent evidence of a slowing of housing transactions, with some indices reporting a slight dip in prices. However, the sector consistently demonstrates great resilience, and therefore I remain confident in the market’s ability to react, flex and thrive.
The fact is, despite some ongoing volatility, we’ve had a very good summer as an industry, and there’s a lot of positivity from brokers – who have adjusted to the new mortgage interest rate reality – including the realisation that a return to the 2% examples of the recent past is unlikely.
Brokers are helping borrowers to understand that what we’re seeing today is likely to be the new norm, and plan for this, which is bringing more consistency and stability in place of the ‘sit-and-wait’ approach some people were employing in the hope there would be further significant falls.
The bottom line is that people are still looking to buy homes and product transfer and remortgage volumes have also remained strong, keeping brokers busy. The flattening-out of rate volatility has brought fresh calm and reduced the need for brokers to keep reworking cases, allowing them to focus on deepening the personal support they offer their clients and exploring new business opportunities.
Much of the current optimism is also driven by the affordability changes we’ve seen this year, which lenders are starting to react to, such as the loan-to-income (LTI) limit review and the regulator’s clarification of its rules around affordability calculations.
They have provided lenders with greater flexibility to lend – where previously they were restricted – for example, by LTI caps. This allows them to formulate their own risk appetites and lending strategies to help borrowers in the best way.
The clarity provided by the regulator also means that lenders are able to deploy the best possible interpretation of the rules. For example, we’re now able to lend borrowers on average 15% or £37,000 more as a result of changes we’ve made to how we assess their affordability in response to the updated guidance, which enabled lenders to review stress rates.
This, coupled with the LTI changes, unlocks the market for those who had perhaps given up trying to get onto the property ladder altogether, believing they just couldn’t borrow enough and had resigned themselves to having to save up a bigger deposit over longer rather than looking for a home.
The feedback we’re receiving suggests there are people out there who still don’t realise what the recent changes could mean for them, and therefore it’s our responsibility – and that of our valued broker partners – to make them aware. We can help brokers with this – through content such as our Growth Series, which can support with customer contact strategies and social media advice to target new audiences. Business Development Teams can also help explain the actual difference this will make to their clients.
All this is fantastic – but we can’t ignore the fact that by creating fresh demand for property, these changes could also start driving up house prices – especially if that demand exceeds supply. This would affect people at all stages of the housing cycle and is why it’s so important for the Government to deliver on its house building promises in order to create fresh supply, as well as reviewing its policies on things like property taxation to encourage more people to move.
For example, those looking to downsize may be put off by the prospect of paying stamp duty, which is why we’ve lobbied for change in this space via our policy paper – ‘Home Improvements’. Having a strong voice from lenders is really important to help to fix some of these challenges.
At Accord, we’ve always tried to react quickly and ensure we’re at the forefront of product and service innovation to support the market, and we’ve had some great successes in the last six months – including being one of the first lenders to review our stress interest rate, and announce product changes in response to the LTI review.Â
We hope that these things, alongside changes to our new build proposition to lend up to 95%, and the introduction of parity pricing to remove the new build premium across all our products, have made a genuine difference to borrowers’ prospects.
We’ve also provided support for underserved groups through our most recent change, which enhances our criteria for those who do not have indefinite leave to remain and changes our rules for the acceptance of Universal Credit in affordability assessments.
But, as ever there’s more to do for all market participants – from the Government to regulators, lenders and brokers – to ensure that the optimism we’re all feeling continues.
For us, this means constantly looking at how we can continue to support underserved borrowers, remaining competitive on price, focussing on product innovation and lobbying for further industry change.
My hope is that the increased market stability we’ve seen recently can be maintained, allowing us the room as an industry to keep the good work going.
Jeremy Duncombe is managing director of Accord Mortgages
