It goes without saying that 2020 has not turned out quite how we expected as a lender with the last few months spent adjusting, learning and trying to find a “new normal” following the sudden and immediate shutdown of the property market.
For me personally, with a complete shift in the way we live and work, as the days have turned into weeks, and the weeks turned into months, dealing with the new issues and challenges thrown at us has been the main objective. It’s been full of uncertainty, with no clear understanding of what the future will look like. But right now there is light at the end of the tunnel. Mortgage activity has bounced back quite spectacularly and has increased to almost 85% of pre-Covid levels (CACI data[i]), estate agents and brokers are reporting record activity from pent-up demand, with many people emerging from this lockdown wanting to take that next step on the housing ladder as they seek more space inside and out along with many wanting to release funds for renovations they have mentally planned during the last few months.
So what’s next in the short term?
As a lender, our key focuses throughout have been the safety and wellbeing of our colleagues and maintaining the best possible service for our customers. Whilst many of the decisions we have had to make were out of our control, we have tried to implement every change with as little disruption as possible.
Colleagues have adapted to their new working environments, be that at home or in a new office layout and got to grips with new technology along the way. Our teams have done a fantastic job of coping with these changes and the significant increase in demand to help support both our existing customers and those looking to take a new mortgage with us.
We also need to demonstrate they we are lending responsibly, and that mortgages are affordable both now and in the future. Given the wide spectrum of economic outlooks across the market, that can be difficult to demonstrate on the cusp of a recession with unemployment expected to rise and job security less certain. This one is less predictable and the reality is, at this moment in time, no one can be sure how things will play out.
Over the next few months, it’s crucial the industry pulls together to help rebuild confidence in the market.
Each lender has their own view of the economic outlook and their response to that varies. A significant number have withdrawn from lending at higher loan-to-values (LTV) until there is more clarity and certainty about the future. Unfortunately, this means for the vast majority of borrowers they now need to find at least 10% deposit, or more, to buy their home.
What does the remainder of 2020 look like?
I think there are lots of reasons to be optimistic both as a borrower and as a lender. Operationally, businesses are finding ways to adapt, the backlog of valuations is starting to subside and we have embraced and utilised technology to deal with and in some cases speed up administrative tasks.
The good news is there is still very much an appetite to lend. Whilst the immediate outlook for the housing market shows some negative price reduction and rising unemployment, the medium to longer term outlook is more positive. All financial service providers undergo rigorous stress testing and are much better prepared for a financial crisis than ever before, and that is why I believe the majority of lenders will look to continue to lend throughout this crisis.
Those looking to make their first steps onto the housing ladder may find themselves hardest hit by the current market conditions with a shortage of low deposit mortgages available, along with the end of the Government Help to Buy scheme later in the year. As well as fewer lenders offering lower deposit mortgages there has also been a reduction of acceptable sources of income such as bonuses, overtime, commission and other variable income. This hits the self-employed population even harder when their entire income is dependent on trade, and that trade has slowed or stopped in recent weeks. These borrowers will need a higher deposit and a higher basic income than they might have done before.
Longer-term fixed rates
We have also seen a lot more demand for longer term fixed rates. In these uncertain times, it is understandable that borrowers would look to secure their interest rate for the next five, seven or ten years, especially with interest rates being as low as they are at the moment. Another benefit is that if house prices do reduce in the short term, a longer term fixed rate provides assurance that the reduction in equity won’t drive an increase in payments during the fixed period, though this security can come at a cost is mortgage rates go lower still.
Product transfers and remortgages
Another change I expect to see is the increased retention of existing customers. The uncertainty in the market and short term house price reduction is likely to see customers choosing to stay with their current lender. With over two million people in the UK currently furloughed, they are also likely to be nervous about the future. Locking in a cheaper rate with their existing provider without having to go through the process of applying for a new mortgage elsewhere will no doubt feel the easier and safer option.
With a vast amount of borrowers coming to maturity in 2020, many of which will be first time matures, this is the time to help customers change their mortgage to a better deal, either with their existing lender or to another lender offering an alternative option. As a lender we have a responsibility to ensure we support our borrowers and help them understand their options at the end of their deal.
Whilst we don’t know how long the impacts of this situation will last, I do know how resilient our industry is and how we will continue to be here to support our customers and members when they need us.
All information correct at time of publication.
[i] UK-wide the value of applications last week (W/C 8th June) stood at 84% of the size of the first week of March, the peak of activity prior to the slowdown