We also expected a rush as borrowers sought to beat the 31 March deadline next year for completing on Help to Buy transactions and then the temporary stamp duty holiday put further strain on systems.
This has all added up to a record number of mortgage approvals for property purchases in September to 91,500 – up from 85,000 in August.
The challenge for lenders now is to make sure these convert into completions and do not leave disappointed customers unable to move into their new homes.
Borrowers hoping to beat the Help to Buy and stamp duty deadlines are being warned now that unless they have already agreed to buy, they stand little chance of completing in time.
So what are the main challenges? We undertook a survey of our members to find out a bit more about what the pressure points are and what might be done to alleviate them.
The results show there are various challenges – and there is unlikely to be a one-size-fits-all solution.
How has the virus impacted lenders?
The biggest single issue at present is sheer volume and the various impacts of Covid-19 mean it’s not possible simply to scale up operations in order to meet the increase in demand.
One in four lenders stated the crisis had forced them to seek further proof of income from borrowers, slowing down the timescales within which applications can be assessed and offers issued.
And 40 per cent said the need to underwrite more cases manually has significantly impacted their service levels.
As some individuals come off furlough and others face possible redundancy or reduced earnings, lenders need to do even more to be certain that borrowers can afford their mortgage.
Inevitably this means that many are having to undertake much more manual underwriting.
Building societies and specialist lenders have traditionally done this much more than larger banks and mainstream businesses, which have relied more heavily on automated credit scoring tools to deal with high volumes of applications.
But current circumstances are more complex and require a different, more in-depth approach.
It might be tempting to assume that the answer is for lenders to recruit more underwriters – but, as members point out, it takes time to find and recruit experienced underwriters – and even longer to train up new ones.
Home working and social distancing
Around 30 per cent of members acknowledged that social distancing and home working have also – inevitably – been an issue.
Given the circumstances, lenders have done an incredible job, quickly integrating new technology into their businesses and enabling employees to work effectively from home.
But we have to remember that many of those working from home may have to juggle their family lives with work, looking after children or caring for the elderly.
Another major factor has been the spread of products available: the combination of higher demand, need for more detailed underwriting and operational challenges has forced lenders to withdraw products.
Their focus has been on dealing with as many applications as possible – at the expense of the more complex, higher risk ones – but it’s clear they wish to return to the higher LTV space as soon as possible.
Overwhelmed by demand
This creates problems too – as lenders do gradually return to this part of the market, they risk being overwhelmed and over-exposed unless there is a critical mass of others joining them.
The only mechanism they have to manage demand has been to put the brakes on products when activity starts to get out of control.
A third of our members cited this as an issue.
Again – it might be tempting to ask – why can’t lenders agree to return to these markets collectively?
Well competition law would currently prevent them from doing so – but might there be scope for regulators to consider a temporary waiver of the restrictive legislation, in order to help re-open the market fully?
Advisers have helped
What is absolutely critical to a well-functioning market is effective co-operation between lenders and the intermediaries who introduce such a high proportion of their business.
Efficient systems and clear processes can greatly help to ensure that cases are “all right first time” – and that time isn’t wasted chasing and checking missing information.
Lenders really appreciate the efforts intermediaries have been making – 67 per cent said intermediaries have helped to speed up mortgage applications by going the extra mile to package cases in line with their requirements.
As a result, 17 per cent agreed these actions had helped to reduce time to offer by as much as 10 working days – a significant reduction.
Lenders praised intermediaries who worked together with business development teams to understand criteria and clarify any issues before submitting applications.
They also appreciated intermediaries’ use of case tracking software and lender portals – thereby avoiding the need or temptation to ask lenders for frequent updates on case progress.
So while some of the current challenges are likely to stay with us for some months yet, and some of next year’s challenges remain unknown, it’s clear there is still huge demand for mortgage advice and mortgages.
There may not yet be a silver bullet for the capacity challenge, but by working together we can make the process as efficient as possible – and ultimately help more homebuyers to make their housing plans a reality.
