Speaking in a fireside chat at The Mortgage and Protection Event, Claire Cherrington (pictured), head of strategic and technology partnerships at Lloyds Banking Group, said: “Until wage growth really catches up with some of the inflationary increases that we’ve seen, in real terms people’s incomes are less than they would have been one or two years ago. So, the cost of living crisis will continue to be a challenge.”
She continued that affordability may be a struggle for some and that there could still be “big payment shocks” for people coming off their current fixed rate deals.
However, she said that there was a difference in payment shocks, explaining that with “smaller ticket value mortgages” typically a lot of customers could not absorb those shocks. When you progress to “higher ticket value mortgages” most of them can absorb the payment shock but they “might not like it”.
Cherrington continued that as a firm it was “really focused” on ensuring it was there for struggling customers.
She noted that the Mortgage Charter had done several things, such as ensuring a product transfer could be secured up to six months beforehand, extensions of mortgage terms, temporary switch to interest-only and a pause on repossessions.
“We welcomed the government stepping in on the Mortgage Charter, anything that can provide some more certainty for customers is really helpful,” Cherrington added.
She continued that it had seen more people taking the interest-only option as opposed to term extensions.
“I think that’s because the people that are coming to us are the people that do need help and actually by moving them onto an interest-only basis it’s a bigger financial benefit monthly for them than if you were to look at extending the term.
“What that’s enabling them to do is just take stock of their financial situation,” Cherrington added.
She noted that as Lloyds embedded Mortgage Charter processes it had “always referenced the need for advice”.
“We think that that is a really important point at which customers should be having advice. We really welcome you [brokers] helping us support customers by talking to them if they are in financial difficulty, the worst thing that customers can do is keep their head in the sand about this.
“So, we really have tried to signal back that where you have a financial adviser or where you have advice available to you, please come and talk to your mortgage broker or your lender,” Cherrington explained.
However, she said that the numbers of people using Mortgage Charter measures was lower than forbearance options introduced during the pandemic.
Purchase market will continue in current state without government intervention
Cherrington said that without some “material government stimulus” the “acquisition market” was unlikely to change too much from current levels.
She noted that the Autumn Statements and the Spring Budget could be key points where the government could intervene into the mortgage market.
Cherrington continued that there were varying figures on product transfer and remortgage opportunities, with ONS figures from last year indicating that there were 1.4 million mortgages maturing this year and one million in 2024.
“I think what that would signal to me is that there would be less opportunity in the product transfer/remortgage space going forward which really means the need to stay in touch with your clients and have that constant engagement is going to be really imperative,” she explained.
Cherrington continued that there is a “massive opportunity” for the broker market as currently 42 per cent of product transfers are done through the intermediary channel.
“There is an opportunity for us to do a better job at making sure that we’re serving those needs on behalf of our customers,” she added.
Consumer Duty puts more onus on protection
Protection was another key area going into next year, with Cherrington adding that Consumer Duty had been “really clear about the need to make sure that the conversation around protecting a customer is had, and had consistently”.
“I think that we as an industry aren’t always brilliant at having the [protection] conversation. We’re not brilliant at having it at acquisition/purchase point, we’re probably less brilliant at then having it at a remortgage point and even less brilliant that having it at a buy-to-let level,” she noted.
Cherrington said that a key “opportunity” for next year would be for brokers to “really think about either having those conversations consistently yourself, or being able to pass those over in a referral module so that the customer is protected”.
“In the in the current economic space income protection and things like that are really helpful for a client, and whilst I appreciate that it’s a difficult conversation to have alongside interest rates going up and so on, I think it is absolutely vital,” she explained.
