This has a knock-on effect on mortgage rates of course but when coupled with the highly publicised ‘energy crisis’ and ‘cost of living crisis’ this has far more significance to lending policy.
Affordability has become a watchword for responsible lending in the post-credit crunch era with responsibility falling on lenders to ensure not just that a borrower will repay a lone but that they can repay a loan.
As a result, the pressure on brokers has increased to ensure that their client actually qualifies for a loan well before decisions on term and rate. The housing market remains buoyant and anecdotal evidence reveals that estate agents are not even booking viewings unless the potential buyer is under offer and ready to proceed, never mind just ‘on the market’.
Criteria changes essential to keep on top of
Criteria changes are therefore essential to be aware of as changes happen every day and not all are headline making.
Over the past month the ‘maximum age of the borrower’ at the end of the mortgage terms remained the most searched-for criteria in the residential sector which supports the position that borrowers are looking to extend their mortgage term to lower monthly payments which will, in turn, help meet affordability criteria.
This is reinforced further as the search for ‘income multiple used for affordability assessment’ was the second most popular during the past month. Brokers are aware that affordability will be an early casualty of a rate war and so are looking for lenders that continue to offer affordability criteria that fits their clients.
In the buy-to-let sector, the most common search was for ‘first-time landlords’ which showed us that despite rising costs and a removal of tax incentives for landlords, there is still a strong belief that housing represents a good long-term investment.
Entering a ‘golden period of mortgage advice’
With interest rates rising and the inevitable, and depressing rise of mortgage rates hot on their heels we are entering a golden period of mortgage advice.
As we know, people buy houses not mortgages and, as rates rise and product choice diminishes, borrowers can expect to see their ability to purchase their dream house disappearing before their eyes.
In a rising interest rate environment, where products can suddenly become the ‘best buy’ as other products are withdrawn, lenders can manage their inflows and subsequent service standards by adapting and amending criteria rules.
It’s not as glitzy as a rate change but it’s often far more effective. If lenders get overwhelmed by inflows as borrowers fight to secure a product before rates rise, expect to see a raft of criteria changes on a daily basis over the next few months.