Even towards the end of August, many ‘Out of Offices’ were still on throughout the industry, but now you can already sense the slow but steady changing of lending gears as the lending community cranks itself up for a full tilt at the rest of 2023 and beyond.
For all the focus on higher rates, the recent – and wholly anticipated – increase in Bank Base Rate (BBR) seems like it was already baked in, while swap rates are certainly running lower than a month or so ago.
That being the case, much like the first swallow of summer I recently saw the first mention of a ‘mortgage price war’ in the media, which might be taken with a hefty dose of salt by those of us actually working in the sector but does provide some focus on recent price changes from a small number of lenders.
The point is that lending targets do not simply disappear as the year progresses; certainly not when there is so much riding on them being hit, and while I suspect a large number of lenders are making more money from the individual loans they write based on a higher rate/margin, there will still be a continued focus on the volume of business being written, and how the pipelines are holding up.
September is traditionally a month which can deliver some significant step changes in terms of lender appetite, lender pricing and the like. And, we should not forget, that – particularly when it comes to purchase business and the time it takes to complete – we are effectively looking right now at the lending which will book-end 2023.
And that’s if it completes in under four and a half months, which is not necessarily written in stone given that average transaction times are above this.
However, while there has been a lot to focus on throughout 2023, not least the increase in BBR and the up and down nature of swaps, it’s still possible to see a lending community which is increasingly looking to the first-time buyer market to help it hit its targets this year.
2022 represented something of a high water mark from that point, with first-time buyer activity outstripping all other types of purchases, and there has to be an assumption that this is one trend that will continue into 2023.
In order to achieve this, we of course want to see a greater number of lenders offering higher LTV products, because – taking out the obvious supply issues facing first-timers – the single biggest obstacle that remains is saving for a deposit, especially when house prices remain high, even with recent falls.
As mentioned, lenders do seem to be responding to this in terms of their high LTV provision, which again throughout 2023 has been up and down at any given time.
I always look at the monthly provision of 95% LTV products, and at the time of writing, there were 28 more products this month than last in this space. That is almost a 25% monthly increase and while rates are higher than we would wish them to be, it does mean a greater level of choice for those who are able to save a 5% deposit in the current market.
My own feeling is that this product number choice will continue to climb in the months ahead, not least because there is a feeling that we are reaching something of an interest rate peak, and by looking at the money markets you certainly get that feeling.
If lenders are becoming more comfortable with the direction of travel for rates over the next 12/18/24 months, and can price accordingly, I think we’ll see a greater level of interest in higher LTV loans, resulting in more product choice. Not least of course because, if you can make this business work, you are getting borrowers at the start of their home-owning journey and you can secure a greater level of margin for that business.
This can add up to ‘stickier’ clients who are more profitable for lenders – albeit with the usual caveats around the amount of business lenders can complete in the high LTV space, and the points about first-time buyer affordability/business and making sure there is less of a risk with this.
Which would lead me to the obvious point about how lenders can mitigate such risk, with mitigants such as private mortgage insurance, and there’s no doubting that those lenders more active in high LTV mortgage provision tend to be those who are utilising insurance, predominantly the building societies who do such a fantastic job in this area.
Overall, and I’m conscious that we’ve seen precious little sun in this country in the last few weeks, while we move through the rest of the summer and into autumn, it makes sense for lenders to target high LTV business, and for advisers to be presented with a greater array of options to find the right solution for these types of clients. The need for mortgages like this is not going away, and therefore expect more activity from lenders to deal with it.
Patrick Bamford is head of international business development at Qualis Credit Risk, part of AmTrust International