Data from Moneyfacts last week revealed that the number of mortgage products available has increased to 5,146. It’s the first time since last May that product numbers have passed the 5,000 milestone, with Moneyfacts noting that it came six months after “unprecedented uncertainty surrounding interest rates” in the wake of the mini-Budget.
And while brokers welcomed the heightened level of choice and growing confidence among lenders, there was concern that some borrowers remain poorly served.
Filling the gaps
Sebastian Riemann, director of Virtus Private Finance, said that there has been “a good amount of choice across the board” since the start of the year, but warned there has been a “distinct lack” in specific areas.
These include three-year fixed rates, capped rates and offset products which are still not readily available.
He continued: “Offering something a little different for first-time buyers would also be a welcome addition. Historically first-time buyers were often rewarded for their status with exclusive rates, lower fees, etc but this seems to have fallen by the wayside too.”
Differences come from criteria rather than pricing
Justin Moy, managing director at EHF Mortgages, noted that the pricing of products was quite similar among many high street lenders, with the differences being based on affordability and criteria.
He continued: “Smaller lenders and specialist providers have some renewed confidence, as we have seen more products come to market with some improvements to criteria, such as the level of background credit issues.”
This was echoed by Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, who said that product innovation and criteria changes “are becoming the new battleground”, rather than simply competing over who can offer the lowest rate.
“This means lenders are looking hard at things like zero-hours contracts, umbrella companies, and variable incomes ‒ like commission or overtime ‒ and taking another look at how they deal with the self-employed,” he added.
Tackling landlord frustration
Moy pointed to the buy-to-let market as having seen “major changes” in the number of deals on offer, “as lenders have looked to provide a greater choice of options with different fee levels, to accommodate the ICR requirements many landlords are frustrated with. In particular, those lenders geared more toward professional landlords are the most helpful.”
Richard Campo, founder of Rose Capital Partners, said that the main challenges being faced at the moment revolve around affordability, such as the fact that many high street lenders cap affordability at 4.5 times income for self-employed clients.
He continued: “The biggest issues are on buy to let which haven’t really changed for over a year, but are only getting worse. I completely understood why lenders put a ‘stress test’ in at 5-5.5 per cent as they need to account for future rate rises, however my issue is that now we are here, why are some stressing at 6-8 per cent? It seems crazy when no-one is now predicting that.”
Restoring confidence
The increase in product numbers shows that lenders are competing hard for business, suggested David Hollingworth, associate director of communications at L&C Mortgages.
He noted that some lenders will be struggling to keep up with the sharpest pricing, with the big players dominating the best buy tables, which should encourage lenders to look at different areas where they can improve their product offering.
Hollingworth noted that the fall in the number of products available at 95 per cent LTV suggested that lenders were applying some caution to their activities, due to concerns around house prices.
He continued: “Product numbers aren’t the be all and end all in measuring the health of the market of course and criteria will often play just as important a role in expanding the options and offering practical solutions to borrowers. However, strong competition should at least help ensure pricing remains as sharp as it can, which will be important to restore confidence after the shockwaves of the last year.”
Aaron Strutt, product and communications director at Trinity Financial, said that the main issue at the moment was the pricing of products, which have increased markedly since last year.
He explained: “Many of the people we are speaking to understand the cost of borrowing has increased but still hope rates will come down next year.”
Addressing the problems
Riemann argued that there is “an incredible amount of scope” for lenders to take advantage of the gaps in the market whenever they choose to do so.
He added: “This year does seem to be about market share as opposed to profits so I am expecting a wide range of different lenders to lead the charge on new business over the coming weeks and months.”
Campo called for lenders to offer fairer criteria for the self employed, and more reasonable stress tests on buy to let, arguing this would solve many of the current headaches.
He added: “Just launching new low rate after new low rate is very welcome, but it doesn’t fix the issues around affordability.”
