There’s no doubting that mortgage advice practitioners have a lot to contend with at the moment, especially when it comes to inflation and the cost-of-living increases that borrowers are contending with in areas such as food, fuel, and energy, to name just a few.
In that context, it’s not surprising that these are issues which are increasingly being discussed ‘on the doorstep’ with advisers, as these increases are being factored into lender affordability measures and impacting on the levels of borrowing people are able to access.
From what I can see, lenders are trying to shift and manoeuvre their measures in order to give some breathing space and to help credit-worthy borrowers get the mortgages and loan levels they need. But there’s no doubting that as we move through the year, inflation and the cost of living will play a much greater role in adviser-client discussions.
Certain types of borrowers are going to be more impacted than others, perhaps notably first-time buyers who will not only have to get over the ‘saving for a deposit’ hurdle, but may find it much more difficult to prove their affordability against such a backdrop.
In that sense, it feels like we’re only barely over the starting line in terms of what inflation will mean for borrowers. Certainly, when you hear the Governor of the Bank of England talking about an apocalyptic vision for food prices, in large part because of what is happening in Ukraine, then this certainly makes you sit up and take notice.
The governor, Andrew Bailey, also talked about what – if anything – the Bank can do to bring inflation down over the short-term, and the answer was not a lot. Indeed, it would seem that 80% of the UK’s inflation drivers are outside of our control, which might well lead you to wonder why the Bank is putting up rates to bring down inflation if it’s understood that this action will have little impact?
In the mortgage space however, and particularly for advisers, there is some good news to currently hold onto, in terms of the ongoing strong demand for finance against this economic backdrop.
Purchase activity appears to show no signs of slowing down just yet – although this is likely later in the year – while a greater degree of uncertainty as we’re seeing in the economy is driving existing borrowers to look for mortgage payment certainty, even if that does mean they come off existing deals early in order to secure it.
Certainly, volume levels in the purchase arena have outstripped the anticipation of many, with anecdotal tales of agents putting up property for sale in the certain knowledge of it generating a bidding war, while others are offering on homes before they have even seen them. This is down to the level of supply – or rather lack of supply – we have at present.
Will this last? Well, we must anticipate that at some point during 2022, it will begin to peter out a little, especially if economic uncertainty begins to hit consumer confidence about whether now is really the right time to be buying. If that scenario does play out, then once again, there’s going to be a reliance on the remortgage element of our market, so it makes sense to be taking this incredibly seriously both now and in the future.
We’re all acutely aware that a remortgage need provides the perfect opportunity for advisers to explore all other borrower wants and needs, not forgetting the type of protection and GI cover they currently have in place, and whether it’s up to scratch, or whether it needs an overhaul. Add in other elements such as conveyancing or legal advice, and the opportunity to put your business front and centre with a repeat client, and you can see where referrals and recommendations might also be able to get you.
At the moment, we’re fortunate in that we have both very busy purchase and remortgage markets, and there may be something of a tendency to focus on one over the other to the detriment of all. Advisers are incredibly resilient, but they shouldn’t look a gift horse in the mouth, especially if that horse might bolt at some point during the year.
What might seem the toast of the town right now, and a sure thing for the foreseeable future, might look very different as inflation and the cost of living continues to bite.
Be aware of what change that might bring, what might be heading over the horizon, and start doing all the right things now, to mitigate any negative impact that could be coming.
Jo Carrasco is business partnerships director at Stonebridge