Craig McKinlay: A brave new world?
Craig McKinlay is new business director at Kensington Mortgages
After more than three months of lockdown, the UK’s vision of a ‘new normal’ is beginning to unfold.
As these measures slowly begin easing, the overwhelming emotions and initial reaction of doom and gloom are also subsiding. People are feeling more hopeful, which means as lenders we need to help kickstart the housing market by looking into the future and understanding our borrowers’ needs and wants.
For example, there is a clear shift in what buyers are ideally looking for: gardens; indoor space to be converted into a home office; and a close proximity to shops to avoid reliance on public transport. These are all now highly sought-after criteria.
By understanding these new attitudes, we can shape the ‘new’ mortgage market accordingly, to ensure we are meeting new demands.
After all, growing consumer confidence in the housing market is at the crux of the industry being successful again.
Ending mortgage payment holidays
Customers are understandably worried about what the future holds. This is particularly the case for those with mortgage payment deferrals.
The challenge our industry now faces is that lenders need to have conversations with existing borrowers over the coming weeks and months to establish the best solution for every individual.
As lenders, we need to prioritise helping our existing customers by responding to such queries with clear communication and by offering a solution that best fits their individual circumstance, not a blanket exit policy.
Personalised, individual solutions are therefore essential. These could include recapitalising the repayment deferral, turning part of the repayment into an interest-only offering, paying off deferral repayments entirely, or a combination depending on which fits best.
Giving borrowers a solution which is individual to them, rather than a generic response, is a step in the right direction.
New mortgage products
The needs of consumers are not the same as they were pre-coronavirus; lenders need to take action on what products they have available so as to adapt.
Issues around deposits are particularly sensitive, seeing as product choice across the board has significantly reduced and high loan-to-value (LTV) offerings are limited.
First-time buyers, though, are integral to our market – and at a time where many have likely dipped into their deposit savings as a result of the pandemic, they will ultimately be relying on high LTVs more than ever to get their foot onto the ladder.
Lenders will need to address the lack of high LTV offerings and take a look at alternative solutions help first-time buyers get on the property ladder. These will of course take time.
What the industry has seen is a spike in demand for new-build properties and Help to Buy; nevertheless, this is very much a short-term solution as the availability of new build properties is limited.
Flexibility with lenders
One of these solutions, and arguably the future success of the housing market, depends on lender flexibility. Simply put, we need to move away from old, rigid underwriting rules and instead take a more sympathetic and pragmatic view.
Flexibility would play an important role if, for example, a customer had been put on furlough throughout lockdown but has returned to work since. If their salary remains stable, then lenders should take this sustainable income into consideration and even potentially disregard any furlough involvement.
In these circumstances, it is essential that lenders have the flexibility to treat individuals in the same ways they would have done pre-crisis.
Lenders have used the lockdown period to accelerate their technological transformation. Simple, easier, and faster processes for brokers to engage with consumers will enhance the customer experience whilst doing so efficiently, ensuring a digital but pragmatic approach to the human manual underwriting process.
Typically, this would feed into the realm of specialist lending. Manual underwriting allows lenders to not solely rely on a credit score and number, instead assessing each individual on a case by case basis. Otherwise there will be good, reliable first-time buyers who will be locked out of lending if the industry carries on with the ‘computer says no’ approach.
Manual underwriting is likely to become more mainstream and it is a great opportunity for specialist lenders to step up too and introduce post-COVID products to ensure customers are being treated both fairly and sensibly.
The pandemic has had an extraordinary impact on the housing market. Although it is sometimes difficult to fully comprehend where we go from here, we are already beginning to see permanent changes and it is our responsibility as lenders to understand what the future might hold, and exactly what our customer’s needs might be, to ensure the future success of the industry.