For many mortgage advisers, the past 12 months will have undoubtedly been some of the most challenging they’ve faced in their careers.
As well as navigating the heightened emotions of their clients, there’s been the additional pressure of lenders withdrawing from and reentering the market to contend with.
Of course, part of being an intermediary is getting used to, and adapting to, a certain level of turbulence, but during its peak from March to June 2020, this was particularly acute.
From a lender’s perspective, the decision to withdraw from the market (or change the criteria of a product) is never one taken lightly, and the intention is always to provide intermediaries and their clients with as much notice as possible.
Nevertheless, if an intermediary has a better understanding of the reasons behind these decisions and the processes needed to withdraw or launch new products, they will be better equipped to handle these developments, as well as communicate them more effectively to their clients.
What triggers a lender’s decision to launch or withdraw products?
At the core of any lender’s short and longer-term decision-making is the customer. Identifying immediate demand and assessing changing market conditions is particularly crucial, as is understanding wider dynamics.
The rising age of first-time buyers for example, or a shift to multi-generational living arrangements might prompt a conversation around product launches, whilst a move from the government to tax self builds more heavily might spark a decision to be less present in this market.
All of these factors inevitably impact the products a lender chooses to offer and of course, they’re all keeping an eye on what the competition is doing too.
Another fundamental factor behind a lender’s decision to launch or withdraw a product, is the need to balance their portfolio and their overall appetite for risk and reward.
Some providers may prefer the majority of their mortgage book to comprise standard residential lending with generally lower price points but greater volumes, whereas others will allow a certain proportion of lending to be in niche areas such as self build, later life or expat.
As well as mortgage type, lenders will also be looking to weigh up other elements such as product type, repayment type and LTV too. It’s a fine balancing act.
These opportunities then need to be balanced with the lender’s capabilities, both in terms of skills and capacity.
Lenders have a responsibility to consider where the skill sets of their teams lie and to marry that up with the type and volume of application they can fulfil.
Technology will also play a role in this, determining scope for new products, as well as the necessary training for these.
Technological capabilities will have also had an immeasurable impact on remote working, particularly during lockdown.
For example, when surveyors were unable to visit properties in early 2020, many lenders were only willing to lend on properties that could be assessed using AVMs or desktop valuations.
A specific factor for some building societies is their ability to offer a manual underwriting process. Individual underwriting can be a time consuming process.
This can mean that the capacity of the lenders who operate in this way is reached more quickly than lenders who operate an automated process. One way to manage business volumes (instead of flexing criteria) is to launch or withdraw products.
Finally, there are regulations to adhere to. Both the FCA and PRA set legislation for lenders which can have an impact on the products they choose or are allowed to offer.
But each lender will also have its own risk appetite and compliance framework with which to comply. The main focus for most lenders is to have a stable and balanced mortgage portfolio.
However, no lender could have foreseen events of the past 12 months. Even seemingly positive introductions like the stamp duty holiday can have a knock-on effect in different areas, causing a sudden wave of applications that need to be completed by a particular deadline putting pressure on different areas of a business at different times.
It’s this butterfly effect that can prompt the withdrawal or launch of products.
Despite challenging market conditions, most lenders are doing their level best to offer a range of products whilst also maintaining good service levels. It is and always will be a finely-tuned balancing act.
