Such a vibrant market may be good for clients, but it levels a serious challenge at brokers who need to keep up to offer the best advice and to stay on the right side of the regulator.
Only this month Robert Sinclair, chief executive at the Association of Mortgage Intermediaries, warned that the Financial Conduct Authority has its sights on brokers whose pool of lenders is overly limited.
Advisers have remarked on the volume of criteria changes in the later life, self-employed and buy-to-let segments — as well as a plethora of product updates across the market.
Double, triple check
Adrian Anderson, director at broker Anderson Harris, says it “certainly feels as if banks do seem to be forever changing criteria”, and that there has been a “relaxation of lending criteria on interest-only, with some banks being a bit more flexible on allowing older borrowers.”
He says that it’s “always a challenge for brokers to keep up with criteria which is why we want to speak with our lender relationship manager regularly, why business development managers (BDMs) from lenders often come to see intermediaries and why we read regular updates in the press and from lenders.”
Anderson is confident that brokers can keep up to date with marketplace churn if they research thoroughly, but says “it’s always at the forefront of our minds to make sure that the client is getting the best terms, based on their criteria.
“If someone wants a particular loan size, for a particular value or property, we always do our research, look at the cheapest lender and work our way down.
“Brokers double, triple check criteria with their relationship manager at the bank, or they’ll get their assistant to double check the research online, to make sure that we’re definitely going to the right lender for the right client,” Anderson says.
Lender policy visibility
On the research platform side, Mark Lofthouse, chief executive at mortgage technology and data company Mortgage Brain, suggests that the apparent high level of criteria changes has to do with the rising visibility of lender policies and product features over the past few years.
“It’s not so much that lenders are constantly changing their criteria, it’s more that criteria, over the past two or three years, have become more important to matching a customer to the products available,” Lofthouse says.
“If you go back, historically you were either a vanilla product or you were specialist. And that was it. Whereas now, criteria that lenders may always have had are available to brokers through platforms like Criteria Hub. Brokers are using them more, so there’s more visibility compared to in the past.”
Jason Hegarty, co-founder at Criteria Hub, which was acquired by Mortgage Brain in March, adds that this enhanced visibility across the mortgage marketplace has enabled brokers to transact more easily with a wider range of niche lenders.
“Brokers now have access to more lenders who accept, for example, borrowers who have been self-employed for only a year. We provide criteria from 10 or more lenders who accept self-employed borrowers of this type. That’s considered pretty niche, but yet there are a vast array of solutions available,” Hegarty says.
He adds that certain lenders may have relaxed their affordability algorithms in selected market segments during 2019, giving an impression that customers can borrow more.
And criteria platforms have contributed to standardising the language of lending so that it’s easier for lenders to communicate changes to intermediaries and to benchmark their criteria to see where they may be outliers in a particular market segment.
BTL criteria churn
As well as clues that lenders are tweaking criteria for older borrowers and the self-employed in response to changing work patterns, there is evidence that they’ve been tinkering with buy-to-let (BTL) criteria too, with taxation rules the driver.
Liz Syms, chief executive at Connect for Intermediaries (pictured), says that in this segment, criteria has become a key battle ground for rival lenders who may be restricted as to how low they can cut rates.
“BTL is dominated by the big high street names, which take a very significant share of the market. The remainder of lenders, of which there are many, and lots of new ones coming into the market, collectively are trying to get a share of that smaller part that’s left over after the high street has taken its bit,” Syms says.
“There’s a lot of competition between lenders. When their margins are too tight to compete against the high street on price, they tweak and improve criteria.
“That is one reason that you’re seeing such a change in criteria. For brokers, in terms of more choice, it’s the real bonus,” Syms adds.
Research, research, research
She points particularly to holiday let and Airbnb mortgages, where a lot of smaller building societies and bigger specialist lenders have brought out new products and tweaked criteria.
“That’s off the back of consumer demand because with tax changes, where mortgage interest is not deductible in full for higher rate tax payers, holiday lets or Airbnb, if run as a business, are not counted as BTL — even if held in someone’s name,” Syms continues.
“It’s treated as a commercial business for tax purposes and therefore mortgage payments can be offset against income before paying tax. That has increased the popularity of, and demand for, that type of product.”
She adds that a similar dynamic is at play in the segment for homes in multiple occupancy (HMO) products.
However from an adviser perspective, “it’s a lot of lenders and a lot of criteria to try to understand and navigate through, to make sure you are making the right recommendation to a client,” Syms says.
While the pros are about more choice for clients, the cons come in the form of brokers having to be extra careful about giving the right advice.
“There are more products and criteria than ever, even compared to before the credit crunch, and that creates a lot of work and a lot of pressure for advisers to fully research the market accurately. Brokers need to spread their wings and spend time with lenders to properly understand their offerings, because not everything is black and white,” Syms says.
While there is “no one system that does everything”, it’s beneficial to check criteria and then to research a shortlist within the sourcing system.
“There’s a risk that if brokers don’t open their minds to alternative lenders out there and research only from a narrow number of known lenders, they may be missing opportunities or making the incorrect recommendation,” she adds.
Lea Karasavvas, managing director of Prolific Mortgage Finance, agrees that overall the level of criteria churn has been positive for clients and for the health of the mortgage market, but that it does keep brokers on their toes.
“Criteria changes are the nature of the beast in the mortgage market, but we are seeing a lot of changes at present as lenders look to assist in many areas where they were struggling previously,” he says.
“There have been huge criteria changes in maximum ages on mortgage terms, with many lenders now going to age 80 and even 85 which assists older clients. These changes have been very positive, with people living longer and working longer.
“More changes in interest-only criteria continue to strengthen the market place and have also given people more options on how their debt is repaid,” he adds.
However, Karasavvas highlights that the biggest and most problematic change has been within the BTL sector “where it seems every day a different stress test is applied by a new lender”.
“The number of changes have become so frequent that many networks are now rolling out specialist licenses for brokers to transact in this field to ensure that they are on top of all the changes they continue to give best advice,” he says.
Despite the challenge to brokers from such a level of churn, Karasavvas concludes that “the majority of recent criteria changes have helped brokers to give a lot more options to borrowers and should be applauded.
“Lenders continue to be keen to lend, and while these changes are frequent, the majority are enabling us, as advisers, to perform our roles better.”