The first nine months were defined by an ongoing squeeze on the loan amounts available to borrowers, but more recently we have started to see lenders increasing their appetite. Either way, the mortgage affordability environment throughout the year has been defined by increasing complexity.
Consequently, despite the contracting market, use of affordability tech has grown as more brokers recognise the benefits of research platforms to review the market and identify the loan sizes available to their clients. Our research amongst intermediaries earlier in the year found that 94 per cent of brokers said the mortgage affordability market is getting more complex, with 89 per cent of brokers saying they had to work harder than the previous year to secure the loan size their clients want.
A further 76 per cent of brokers said they have clients they believe should be able to get a mortgage, but whom they cannot currently place with any lender, indicating the potential opportunity for lenders to innovate in this area. And we found that nearly all brokers run at least two thirds of their cases through MBT.
The mortgage affordability trends
So, what affordability trends are we currently seeing?
Affordability is, on the whole, improving. However, whilst on average there are more opportunities to place cases as across the market, the maximum loan sizes available to borrowers remain lower than recent years and there continues to be a large variation in affordability by cohort.
For example, for the self-employed, the percentage of affordable and eligible cases has increased from 68 per cent to 73 per cent, but the maximum available loan size has contracted by 5.3 per cent. The percentage of first-time buyer cases that are affordable and eligible has increased from 70 per cent to 71 per cent, while the max loan has contracted by 4.2 per cent. And for applications where the customer is 55 or over at application, the percentage of affordable and eligible cases has increased from 63 per cent to 70 per cent whilst, at the same time, the maximum loan has contracted by 9.2 per cent
The strongest lender from a maximum loan perspective across all customer segments has also changed frequently, although Nationwide has been the most consistent lender in providing the highest maximum loan.
And we have seen a large variation by lender, when it comes to the different cohorts. For example, when it comes to self-employed borrowers, the lender with highest percentage of cases that meet their eligibility and affordability is 50 per cent, while the lowest is 11 per cent.
For first-time buyers, the lender with highest percentage of cases that meet their eligibility and affordability is 62 per cent, with the lowest being 12 per cent. And for applications where the customer is 55 or over at application, the lender with highest percentage of cases that meet their eligibility and affordability is 43 per cent, and the lowest is 11 per cent.
Another current trend is the frequency of affordability changes, and not just because of the rapidly shifting rate environment. Previously lenders would make a change to their affordability calculations on average between every six to 12 months. However, we are now seeing quarterly changes, with some lenders adapting their approach even more often.
Some of the most popular trends at the moment include increasing the maximum term to 40 years. In fact, there are only seven lenders that do not currently offer a 40-year maximum term. Aligned to this, many lenders are also extending maximum age at the end of term, increasing this from 70 to between 75 and 85.
Lenders are also reviewing stress rates, on the back of interest rates changes, whilst also making use of the Bank of England’s updating its stress rate recommendations last year.
And we’re seeing lenders increase the percentage of bonus and other types of guaranteed and non-guaranteed income they can consider as part of their affordability calculations, with a lot of lenders requesting data from MBT on the impact of auxiliary income, such as universal tax credits.
What to expect
So, looking ahead, what key themes are emerging in affordability for 2024?
We can expect a continued variation in affordability across client cohorts, such as the self-employed, also variation across lenders for the same client cohorts is likely to start to reduce, as lenders look for niche areas to grow volume.
Following the closure of Help to Buy, it remains to be seen whether there will be significant demand, from brokers, lenders and borrowers, for new schemes such as Right to Buy and First Homes. However, lenders are looking into other ways to increase affordability for first-time buyers, such as joint borrower sole proprietor and we are seeing more lenders moving into the space, as well as criteria updates to tackle the constraint of the maximum age of the sponsor on the mortgage.
Overall, however, the key trend is likely to be the use of data to build propositions that will enable lenders to meet client needs to drive sustainable volume.
The success of this approach will be the interrelation between criteria, affordability and product as part of the product development process.
This is something we are already seeing, with the many lenders that have already engaged with the MBT Lender Sandbox. Just as more and more brokers are realising the need to use a data-based technology approach to research for their clients, so too now more lenders are doing so to enhance their propositions. The result will be new opportunities for borrowers to achieve the loan size they need and more options for brokers to help their clients.
As we look ahead to 2024, this can only be good news.
