Lenders have had to be agile in their response. We know brokers are in the eye of this storm, playing a more vital role than ever in helping borrowers navigate a safe course through it; which is why we’ve taken a number of steps, over the past 12 months, to help them do that.
These have included a renewed focus on buy-to-let. As providers of crucial private rental housing, landlords have been among the hardest-hit borrower segments. Higher interest rates have effectively broken rental coverage calculations and affordability, restricting the capital they can release from their existing properties to buy more. Potential new energy performance certificate rules and the recently announced drop in capital gains tax allowances pose additional challenges.
As a buy-to-let lender, our response has included introducing top slicing, allowing landlords to take their personal incomes into account for underwriting purposes, removing minimum income requirements and reducing our income coverage ratio (ICR) stress rate to help more make it over the affordability threshold.
For underserved borrowers in general, we’ve introduced our cascade score, opening up more options for borrowers who don’t meet our higher loan-to-value score card but do our standard one; and our LTI Boost, offering up to 5.5-times income.
These are just two examples of our common-sense approach to lending, where we look at each case individually, with direct access to our business development advisors and underwriters for extra support.
We also know it’s not just our products that matter to intermediaries, though. The experience of dealing with us is important too, and we’ve invested heavily in everything from state-of-the-art processing systems to our Growth Series hub which supports brokers in building their own businesses during these testing times. To date, we’ve also sent out more than 100,000 celebratory welcome boxes of essential items, on brokers’ behalf, to clients they have enabled to buy homes, to help them cement those relationships.
What’s in store?
It’s important to take a balanced view of the current economic volatility and take heart from the fact our industry has come through worse before. Fundamentally, the markets have the means of recovery built in and will always find new ways to function.
While the mini budget’s impact was unfortunate, the underlying challenges that caused the ensuing market panic were already there. Steps taken by government since, coupled with clearer messaging and more effective signposting of what’s to come, have started to restore calm to markets which ultimately hate surprises but respond well to clarity of direction, however unpalatable the measures introduced to support economic recovery might be.
Brokers are a resilient and optimistic bunch. Most are telling us they believe things will bounce back and are poised for when they do, while doing their bit to help those caught up in things now.
There is a sense those borrowers are watching and waiting to see where things settle out – as well as being distracted by events like the World Cup and the run-up to Christmas.
However, if these early signs of stability continue, we may well see a stronger start to 2023, with more borrower activity and lenders like us able to satisfy this renewed appetite with a wider range of products.
Certainly, our priority for 2023 is to keep an eye on market developments and continue innovating to improve brokers’ – and their clients’ – access to the products and services they need, including underserved niche segments like the self-employed, families clubbing together to help each other, contractors and first-time buyers
We expect the year ahead to be big for maturities across the industry, with a significant amount of product transfer and remortgage activity. Meanwhile, the likes of first-time buyers will continue being affected by affordability issues, and purchase activity is likely to remain relatively subdued, due in part to lower-than-usual housing supply.
That said, as a nation we are notorious lovers of property ownership. The demands of real life are likely to ensure people’s desire to buy, move and invest in homes will continue and, with the help of brokers, supported by lenders like us, they will find ways of doing so.
The external factors which caused this year’s turmoil are gradually coming back under control, market swap rates are edging back down and, as a result, mortgage product rates are following, towards more historic averages of 5%. If inflation and cost-of-living pressures ease too, we could see a more buoyant 2023 than many forecasts suggest.
Overall, while 2022 has undoubtedly been a choppy year, there are many reasons to be optimistic and hopefully, together, market players can contribute to ensuring much better prospects for the New Year of 2023.
Jeremy Duncombe is managing director of Accord Mortgages
