When you see statistics which suggest the number of mortgage products available in today’s marketplace has hit a 15-year high, you might be forgiven for thinking all bases are now covered and borrowers of all ‘shapes and sizes’ have a plentiful amount to choose from.
As advisers however we tend to know different, and there is a great deal of difference between Moneyfacts telling us mortgage product numbers have risen for the fourth consecutive month, now up to 5,678 options, and our ability to source suitable mortgages for the many different types of clients we see.
For a start, mortgage product choice is merely one part of the overall equation, because as we’ve seen, when product rates begin with a six or, in some cases, a seven, then affordability – or rather a lack of it – immediately takes out large swathes of wannabe borrowers, particularly first-time buyers who might be coming to market with lower deposits.
Thankfully, we have seen rates moving down in recent weeks, and it has been a noticeably busier November than October, but you still can’t help but feel that some lenders are still being ultra-cautious and perhaps unduly pessimistic about what the future might bring.
In that sense, if we could get back to the point where we were at in the first quarter of the year, then we would be a lot further down the road to a more active marketplace. When rates, across all LTV points, start with a four, then we are likely to be playing a very different game, but you get the sense that a large number of lenders don’t want to move to this point very quickly.
Even with competition seemingly ramping up in some quarters, there appear to be a large number who feel they don’t need to do anything, just yet, and therein could lie trouble for mainstream operators who are not in the big six but are still essentially competing in those waters.
We’ve already seen a number of newer players nibbling away at the edges of many high-street banks and building societies’ business, mostly with a focus on flexible criteria, and clearly as we have more complex borrower wants and needs, this is going to be beneficial to advisers with these clients.
Those lenders who can look beyond the vanilla, and who can tailor their offering (and their pricing) to this part of the market, are likely to do well. For example, what about something like Bath Building Society’s ‘rent a room’ type mortgage, which will take into account the income an owner can earn from renting a room out in their home into their mortgage/ affordability calculations.
Or a business like the Ecology Building Society who provide a discount on the mortgage rate when energy-efficiency improvements are made to the property during the term of the mortgage, and can work with the borrower to identify how best to do this, what cashback/grants are available, and indeed who might install solar panels/double-glazing/heat pumps, etc.
That ability to look at those areas, which in the past might have been called niche, and turn them into mortgage products which make a genuine difference and help borrowers get into homes and improve them, are exactly what the more mainstream operators should be doing.
Instead, at what we might call the tier below the major mainstream players, we have a whole raft of lenders who seem unable or unwilling to either cut their rates, or make their product offering far more suitable to today’s borrower. Introducing a new range of 60% LTV products for vanilla borrowers at pricing well below the market leaders, quite frankly, doesn’t do it in today’s marketplace.
Which is a somewhat odd approach for institutions who spend a lot of time attempting to bring in saving deposits, who have no doubt benefited from the additional money being saved with them at higher rates, and who you would think, would have a very great need to be lending out this money right now.
No-one seriously thinks BBR is coming down anytime soon, and these are the very organisations who are under severe pressure to match their saving rates against what they are charging for mortgage rates. You would assume therefore they’d be looking for all manner of ways and means to lend this money out, and to target borrower groups who are still under-served in this marketplace.
Even if you didn’t want to go too far beyond the norm, what levels of business could you achieve with a lower-rate, higher LTV product range right now? Even though product choice has gone up here, it still lags behind and rates are significantly higher than those for borrowers who have bigger deposits/equity to put down.
We have over 100 lenders offering products to residential borrowers currently – that is a congested marketplace, and the slice of business available to the vast majority is not expanding. As advisers we are urging lenders to look beyond the norm in terms of price and criteria, and to expand their offering to borrowers who may not be yesteryear’s definition of vanilla, but who certainly fit the bill in today’s market.
Rory Joseph is director and Sebastian Murphy is head of mortgage finance at JLM Mortgage Services