At a time when interest rates were already rising, inflation soaring and the cost-of-living crisis was squeezing the budgets of many UK households, the fallout from the mini Budget was a further blow to millions of homeowners across the country who saw their monthly payments increase and borrowing capacity reduce as mortgage lenders moved to tighten lending criteria.
According to figures from the Office for National Statistics, approximately 1.4 million UK households are expected to experience rate shock when their current fixed rate mortgage comes to an end this year, with 57 per cent of those up for renewal originally fixed at rates below two per cent. Given the fact that the Bank of England base rate is currently sitting at 4.25 per cent, many of these people will now have to pay more to borrow less than they would have a year ago.
This perfect storm of rising interest rates and reduced lending criteria means the majority of brokers are now facing increased complexity when trying to determine their clients’ affordability and borrowing capacity, while simultaneously balancing price and lending criteria, when taking out a mortgage. It is here that tools such as affordability calculators can play a vital role in streamlining the advice process.
The need for affordability calculators
According to our biannual Mortgage Lender Benchmark survey, it is clear that demand for affordability calculators remains high, with a slight uptick in queries in the second half of 2022 versus the first six months of the year, following the impact of the mini Budget in September 2022.
While sentiment across the board varied regarding the accuracy of some affordability calculators, the general theme among respondents was overwhelmingly positive, with brokers citing time saving and indication of borrowing capacity as the greatest advantage of using technology providers.
Industry mood
Comments such as “affordability is a key consideration for my clients right now and this tool ensures that we can ensure quickly what is able to be offered along with a full audit trail of research,” and “it is not 100 per cent accurate but great for getting an idea of borrowing” proves the increased value of affordability calculators in the mortgage advice process.
Meanwhile, long-time users of the technology said they “wouldn’t be without it; it brings so much to my business”, illustrating that affordability calculators were in high demand even before the current credit squeeze took hold.
Tanya Toumadj, CEO of Mortgage Broker Tools, commented: “Affordability has become even more complex in the last 12 months, so the importance of affordability platforms is even more pronounced in the current environment.
“The accuracy of an affordability platform is the most important feature for a broker (stated by 64 per cent of brokers in the 2022 Mortgage Affordability Report), and this can vary significantly across different platforms, so it’s important that brokers look into the accuracy of results delivered by any platform they are considering using.”
Neil Wyatt, sales and marketing director at Mortgage Brain, said: “We are acutely aware of how important the accuracy and availability of affordability tools are, simultaneously obtaining accurate results from a broad range of residential lenders not only saves brokers a huge amount of time but provides a robust compliance audit trail.”
Jodie White, head of mortgage products and transformation at Legal and General Mortgage Services, said: “While the cost of living crisis continues to impact buyers’ affordability, it’s really positive to see brokers and their clients benefitting from the use of affordability calculators.
“Not only are they an invaluable tool in helping customers understand how much they could borrow, but they help streamline the customer journey both for advisers and their clients.”
Room for progress
While there is still quite a way to go in terms of the accuracy of some technology provider offerings, particularly given current interest rate fluctuations and frequency of product changes among lenders, affordability calculators are proving to be an important and invaluable tool for brokers when advising on product suitability.
This is even more important in the current economic climate where affordability, over and above rate and criteria, is a key priority in determining the borrowing capacity of consumers and ensuring they can continue to keep up with repayments while remaining in their homes.
