Gross mortgage lending in Q2 2023 was nearly 40% lower than during the same period last year and the lowest recorded since the second quarter of 2020. This is according to FCA statistics, which demonstrate the dramatic fall in business volumes lenders will have to absorb this year.
Some of this retraction in lending has been by design, of course. The turbulent economic environment, spiralling inflation and interest rates have led to lenders adopting a more cautious lending appetite, but it looks like the tide may now be turning.
We recently wrote a blog about mortgage lenders entering a price war as they look to make up for lost ground so far in 2023, during which we spoke about pricing being just one part of the mix when it comes to lenders increasing their volumes.
A price war may win the headlines, particularly in the current environment, but just as important is the criteria and affordability war that will happen alongside this.
According to data from MBT, only 28% of all mortgage enquiries actually meet a lender’s affordability and criteria. This is an overall average and it can range drastically by lender and type of case. For example, on self-employed enquiries, it is 19%.
Much has been spoken about a new normal, and a sense of stability is something we have craved in the market for some time now. A new normal will arrive, but following the global Covid pandemic, cost-of-living crisis, and out of control inflation, the concept of a ‘normal’ customer is much-changed. Macro-economic events have impacted the finances of individual households in different ways and there is now much greater diversity in the circumstances and requirements of different customers.
Criteria will come to the fore more than ever before and we know that affordability remains a top priority for borrowers despite faltering property prices. At MBT, we work with lenders through MBT Sandbox on helping them to analyse and model, through data based on live case enquiries, what changes they should make to their pricing and criteria to achieve the lending volumes they need.
Popular areas that lenders are currently exploring, particularly when it comes to maximising affordability, include extending the term, or retirement age, reviewing the % of different income types they will accept, and overall including more bespoke affordability rules for different borrower segments. However, Sandbox enables lenders to model changes to more than 60 criteria elements and to model affordability changes across different employment status’ and incomes.
The lender price war may win the headlines, but the real battle will be won in the criteria and affordability war. Those lenders that take an analytical, data-driven approach will be the best placed to win the additional volume they need.
Tanya Toumadj is chief executive at Mortgage Broker Tools (MBT)
