The Covid-19 crisis created a year of two halves for the mortgage sector in 2020, with the housing market in lockdown between March and May and unprecedented demand in the months following the government stamp duty holiday announcement.
But what could 2021 hold and how will the pandemic continue to impact the sector?
Even before the crisis, there was a clear shift from ‘vanilla’ borrowers to those with more complex circumstances, including the self-employed, workers in the gig economy and landlords. Covid has only accelerated the trend.
Put simply, if the ‘perfect borrower’ ever did exist, they will be even harder to find as we emerge from this crisis. More than 9.9 million people were furloughed as a result of Covid-19, while millions more have faced shorter working hours and in some cases lost their job. Recent research from Citizens Advice also found that a quarter of borrowers had missed, or expected to miss, payments on at least one bill as a result of the crisis. Yet many of these people still require access to the mortgage market; particularly those who need to remortgage, with more than 700,000 mortgages set to mature in 2021 alone.
Since the mid-1990s, the specialist lending sector has existed to support Britain’s underserved borrowers, including the self-employed, freelancers, professional landlords and the credit impaired, driving innovation and widening the range of customers able to secure a home loan.
For many people, this is the second major financial crisis they have faced. Yet, unlike in 2008, when specialist lenders were locked out of the market due to a lack of wholesale funding, this time the situation is different. The long-term implications of the pandemic — creating a new generation of borrowers with impaired access to credit — will mean the sector’s role is more critical than ever and specialist lenders that are willing to underwrite borrowers’ individual circumstances are ready to step up.
Adverse circumstances
Data from our intelligent chatbot, Milo, launched last August, clearly shows that more advisers are already turning to specialist lenders to find the solutions their clients now need. Milo has logged spikes in intermediary searches for criteria that cater for borrowers who have either missed a payment, been placed on furlough or are in adverse circumstances.
We all know the value technology provides, but the pandemic has made the integration of tech into the mortgage journey more pressing than ever. For example, many businesses were forced to change ways of working almost overnight and ‘business as usual’ has had to continue in a virtual world.
The adoption of tech into the mortgage journey isn’t a short-term change, though. With many more people set to need the support of specialist lenders, we will have to think smartly about how we adapt to meet a growing number of borrowers online. Tech will be vital in helping us to provide greater certainty, but also swifter decisions for advisers and their customers.
To get the ball rolling, Vida has partnered with Zoot, a global provider of advanced origination and data acquisition solutions, to create a tech-enabled mortgage journey that will better help our intermediary partners to quickly and efficiently deliver the solutions their customers need.
Tech will not only enable lenders to improve internal processes, it will provide advisers with an opportunity to swiftly and effectively serve new audiences. The pandemic has presented an opportunity to help a wider range of clients. Supporting underserved customers could be key to futureproofing advisers’ businesses once market activity returns to normal following the end of the stamp duty holiday, so it’s important to look to those potential clients who may otherwise be missed. This includes first-time buyers and remortgagers with damaged credit profiles, or even hard-pressed buy-to-let landlords whose yields have been squeezed by the urban exodus. These customers will all need access to the specialist lending market to make their property ownership plans a reality, and that will be possible only with the help of a broker.
My advice to intermediaries is to get ready now. Prepare yourself with the right tools and tech to support conversations with non-vanilla customers. The events of 2020 have turned the specialist market into mainstream lending. Millions more borrowers will need the support of lenders that are willing to help them despite their complex circumstances. We all have a real opportunity to deliver purposeful propositions that change mortgages for good and truly meet these borrowers’ needs.
Louisa Sedgwick is director of mortgages at Vida Homeloans
