Melanie Spencer is head of finova Payment & Mortgage Services
Over the past few months, I have been able to get back on the road again visiting brokers and lenders, which has been fantastic.
Teams and Zoom calls are of course useful and have enabled us to carry on working throughout the pandemic but it’s not the same as meeting people face-to-face.
I have had some interesting conversations with brokers around how the pandemic has changed lender appetite for business making them more cautious. One of the big topics has been around stricter lending criteria, particularly around borrower’s finances due to furlough and redundancy.
Some lenders were willing to lend to those on furlough, others wanted proof they would return to their jobs and there were those who would not consider it. This was particularly the case for people working in industries heavily affected by the pandemic such as hospitality, retail and travel.
Lenders have been easing off on restrictions as furloughed staff returned to work but they still wanted to know about their finances during the pandemic. The scheme closed at the end of September and in total, 11.7 million jobs were furloughed.
In addition, some one million people were made redundant in the 15 months from April 2020 to June 2021, according to the Institute for Fiscal Studies. It said 56% of them found new employment within six months of redundancy, down from 66% before the pandemic.
Lenders were also cautious with the self-employed who used government support loans, as this could imply they were in financial difficulty. However, some businesses took these loans out as security for the future and have since paid them back or are in the process of repaying. But for many lenders, taking these loans moves the self-employed up the risk curve.
As a result of job loss and furlough, some people have turned to self-employment, setting up their own small businesses. If they want to buy a house or remortgage, it can be a challenge for brokers to find lenders who will accept borrowers starting new jobs or who are recently self-employed.
For those whose finances have been stretched brokers have also had difficulties finding mortgages for people who’ve made late payments and consequently have an issue with their credit score.
With the rise in house prices and affordability stretched even further, brokers are also seeing clients who want higher income multiples. Recent research by IMLA found that the house price to earnings ratio topped a record 8.8 times in June, up from the previous high of 8.7 in August 2007.
All these issues that borrowers have can make it tricky for brokers to place cases but some specialist lenders are more willing to accommodate them. With flexible underwriting they can take a deeper look into the reasons for people’s finances going the way they have during the pandemic.
In addition, some lenders have been making changes to their criteria mindful of the fact that the pandemic has impacted so many people financially through no fault of their own.
Being a technology-led mortgage club, I am always pleased to hear brokers say how important good systems are to their business. They appreciate how it can make the running of their firms more efficient bringing cost savings and speeding up applications.
With a focus on attracting new clients whilst servicing existing customers, the broker portals they use are key to driving business onwards and upwards.
The mortgage market will remain busy as housing demand is still strong. Flexible lending is becoming ever more important as people’s lives and finances adapt to the new world of COVID.
Brokers are at the forefront of knowing their clients’ needs. Lenders can listen to brokers and design products and criteria to accommodate ever changing borrower requirements.