In the past few weeks Coventry Building Society, Cambridge Building Society, Saffron Building Society and Suffolk Building Society have temporarily paused new business, citing high application volumes and pressured service levels.
Coventry Building Society has said it will reopen its new business range on Friday.
Paul Broadhead, head of mortgages and housing policy at the Building Societies Association (BSA) said purchase and remortgage demand had “gone through the roof” and many were looking to refix due to base rate increases.
He added that completions were “stubbornly slow” as high demand affected the rest of the housing market supply chain. Brokers said smaller lenders tended to take on more complex cases that needed more manual underwriting and had fewer automated processes.
In August, absences due to the holiday season mean there are fewer employees to manage increased case volumes, alongside the combustible combination of base rate rises, inflation, volatility in swap rates and affordability changes, which have led to more market repricing, so lenders get overwhelmed with cases as others increase rates.
Broadhead added many lenders remained open for business, and it was “not a new phenomenon” to pause new business but this practice tended to be used as a last resort.
“Consumers buying are experiencing an unforgiving market just now, so it is important and right lenders take any steps they deem necessary to keep their service levels as high as possible.”
Scott Taylor-Barr, financial adviser at Carl Summers, explained lenders could control activity by raising rates, amending lending rules or closing doors.
He said lenders had tried the two former options, but this only had led to “very limited and temporary reductions” in business volumes.
“It is a sensible, if a little drastic thing to do and doesn’t cause the market as a whole a huge issue, so long as it is only ever a limited number of lenders out of the game at any one time.”
‘Responsible business decision’
Samantha Bickford, mortgage and equity release specialist at Clarity Wealth Management, agreed it was a “responsible business decision” to pause new mortgage lending to manage service levels.
She said it was “unrealistic” to wait for over a month for new business offers which could lead to issues like property fall throughs and increased pressure on brokers.
“Withdrawing from the market to catch up, give the lender’s sales and underwriting teams some breathing space and make brokers’ jobs that little bit less challenging is much welcomed. Yes, there may be a few less mortgage deals in the market available for clients, but hopefully the lenders still offering new business can keep up with the demand,” Bickford noted.
Mortgage Brain’s lender service report, which surveys 50 lenders, showed residential applications’ average time to offer was 18 days, and for specialist lenders this tips up to 19 days.
The time to offer for specialist lenders ranged from three days to 37 days. For mainstream lenders this was 12 to 26 days.
Gindy Mathoon, business owner and mortgage broker at Create Finance, said he thought it was a “good idea” for lenders to withdraw products as advice should not be based on service levels.
He added service levels could change during the underwriting process anyway with an influx of applications, creating more issues for clients.
“Stemming the flow of applications is very wise in the current financial climate, in order for the lender to remain credible to the broker and appease broker frustration,” Mathoon said.
Jonathan Burridge, founding adviser at We Are Money, said it was a “relatively new tactic” but better in the long-run.
“Sudden withdrawal of products can damage a lender’s relationship with intermediaries and consumers can be impacted. However, if volume pressures are causing significant service issues to pipeline, this bold move should be respected.
“It is in nobody’s interest to cause long delays in a transaction, possibly threatening its success and causing detriment to the consumer. The increased pressures of complaints handling are mitigated, and the lender can focus on its day job and is to be applauded.”
Chris Sykes, technical director at Private Finance, said: “I think the key message here is, it isn’t 2008, lenders still have billions to lend and aren’t running out of money any time soon from what I’ve been fed back by many lenders.
“It is just many lenders are too busy and playing catch up and many don’t know how to price themselves at the moment due to how quickly things are moving.”
More lenders expected to follow suit
Sabrina Hall, mortgage and protection adviser at Kind Financial Services, said there were concerns other lenders may be forced to pause lending.
She explained: “The worry is this could have a snowball effect. Currently, lenders are increasing rates to stem the flow of business because they are too busy. What we sometimes see is when a lender does this, the next best lender follows suit because they don’t want to be overrun with business either when they are struggling.
“If this starts to be the case with lenders pausing lending, this could become a bigger issue if it starts to reduce our options considerably.”
David Baird, director of mortgage finance at Aventur, agreed and said it was likely other smaller lenders might have to follow suit. “I think it is almost a herd mentality or domino effect, one goes and then the others can’t keep up as they are the only lender that offers those specialist products like self-employed.”
Technology investment and targeted exits key
Brokers said communication between lenders and intermediaries was key, and investing in broker portals as well as webchat to supplement human communication would help mitigate disruption.
Recruitment and training of more individuals were also possible solutions.
Sykes said it was very “tricky” for lenders to mitigate disruption as they were “trying their best with the information they have”.
However, he said some lenders could monitor rates “more closely” so they could reduce demand when timescales were increasing, although this could cause more “headaches” due to constant repricing.
He added investment in technology, such as automatic income verification, automated valuations and automated offering once a case is signed off, would be great in the “long-term”, but this would be further down the line and a “large investment” for lenders.
Baird agreed investing in technology would be crucial to help automate some processes and reduce manual tasks. He pointed to larger lenders using open banking to pull credit data.
“If you’re able to automate part of your process, you’re able to do more tasks and complete items quicker. I appreciate the last 18 to 24 months have been so busy they might not have been able to stock, but that’s something I think is paramount to lenders going forward…to avoid this happening again.”
Baird continued that lenders could potentially take a more tailored approach to ceasing lending, so stopping one area of business such as buy to let and then focusing on first-time buyers, as an example, could be a solution.
“All lenders have, for example, first-time buyer products. There’s no reason why they couldn’t turn the tap off to the other types of business and prioritise first-time buyers and made a real play on; we’re still going to help first-time buyers whereas other areas we’ve had to put to the side,” Baird said.
He noted smaller building societies had a “strong position” in their local areas, so maybe they could restrict lending to certain postcodes, which he said they had done in the past.
Baird said extending timelines to a week rather than a few days for closing to new business could “make it worse” as brokers then rush applications through.
From a broker perspective, sources agreed disclosing relevant information at decision in principle and agreement in principle stage and packaging cases well would help minimise disruption.
