In the residential market, the year started with a focus on furlough. According to government figures, the scheme was supporting approximately four million people at the start of the year, and unsurprisingly, this was impacting brokers searches.

With restrictions in place from lenders, ‘furloughed workers’ was the most-searched term across the first-quarter of 2021 in the residential market. While the majority of lenders had strict restrictions and would only consider applicants once they had returned to work, some – like Atom Bank – would consider furlough income for product transfers.

Brokers treaded softly in Q2

Brokers were treading lightly with clients in the second quarter, furlough fell from the top spot in the most-searched terms in April and was replaced by ‘soft footprint at decision in principle (DIP) stage’.

This may be due to the initial stamp duty holiday which was driving urgency from borrowers, and in response some brokers may have applied to multiple lenders to ensure a speedy DIP. By using a soft-search the broker could ensure the borrower’s credit score was not negatively impacted for future applications.

Another factor that resulted in soft-searches was the requirement from most estate agents for a DIP to be in place before they would allow a buyer to view a house.

As we entered summer, and the weather began warming up, employment became a hot topic for brokers; more specifically, self-employment. ‘Self-employed with one year’s accounts’ was amongst the most-searched terms by brokers, as those who had set up their own company during the pandemic were looking to buy.

Similar to those on furlough, lenders implemented strict restrictive criteria for the self-employed, and this was particularly the case for those with just one year of accounts. Understandably with the impact of lockdowns and the pandemic, there were concerns about the stability of self-employed businesses’ income and therefore lenders were cautious in 2021.

Brokers were also searching for ‘time in current employment’ in June. The employment carousel began turning in the second quarter, as confidence began building in the economy. This may also be connected to people leaving the hospitality industry, as with restrictions still limiting business, some were looking to change sector.

Q3 brought a semblance of normality

The first half of 2021 was dominated by furlough and the self-employed struggles, and in the third quarter of the year searches returned to familiar pattern. ‘Maximum age at end of term’ was the most-searched term in July, August and September.

Before Covid-restrictions hit, over the past few years ‘maximum age at end of term’ had been the most popular search by brokers.

The main factors driving these searches include: an ageing population, employees working into later life, and increasing house prices causing borrowers to stretch mortgage terms.

Financial difficulties were also prevalent in broker searches in the second half of the year. ‘Defaults’ and ‘missed or late payments’ both featured regularly in the third quarter, with some struggling financially, potentially as a result of being on furlough.

Affordability an issue in Q4

House prices sky-rocketing over the year certainly impacted criteria searches, particularly towards the end of the year. ‘Income used for affordability’ was amongst the most-searched terms late in the year, perhaps unsurprising as wage growth has been considerably outstripped by the increases in property prices.

In November, the so-called ‘bank of mum and dad’ re-opened for business with brokers searching for ‘joint borrower sole proprietor’. Predominantly used by first-time buyers, these products allow the income, or a deposit from a close family member or friend, usually a parent, to be included on the mortgage, without them actually owning any of the property.

With the end of the stamp duty holiday reducing competition, and first-time buyers largely exempt from stamp duty anyway, many were looking to get a foot on the ladder late in the year.

Throughout the year lenders continued to adapt criteria, resulting in an unprecedented number of changes and searches.

This meant more working from home, more remote meetings mixed with home schooling and for many this was a far harder lockdown to deal with than the early lockdown of 2020.  

I for one really found this new lockdown challenging and will always thank my industry friends for staying in touch and offering a chat when times seemed to be getting on top of me on occasion.  

What this did mean for the industry was an extension of the furlough and mortgage payment holiday schemes being offered; but with the latter being examined more closely by lenders as to whether this measure was right for borrowers in all circumstances. We still wait to see exactly how this affected people who took payment holidays in terms of applying for credit in the future.  

In September the furlough scheme ended, and it had proved to be highly successful in keeping the economy going and ensuring people received a regular income. The impact of the withdrawal has not been as bad as some expected, especially with the removal of the additional Universal Credit payment. But with rates on the rise and inflation very high, the true impact may take some time to rear its head.  

The Financial Conduct Authority’s ban on lenders repossessing homes was extended to 1 April but now that moratorium has been lifted repossessions are slowly rising and there is a backlog of cases. Despite repossessions being historically low, there is concern that levels of serious mortgage arrears are increasing so repossessions are likely to do the same.  

Total mortgage arrears are currently in decline.  

Housing and the purchase market

By far, the biggest impact on the housing and mortgage markets was the stamp duty holiday introduced in July 2020, but then extended out to June 2021.  

The conveyancing industry and mortgage completion teams within lenders should be applauded in getting so many completions through at these peak times.  Now the stamp duty holiday is over, we are seeing more normal levels of mortgage activity. However, lenders are still very busy and it looks like gross lending this year will be the highest since the peak of 2007.  

Funding 

Although on the increase following December’s 0.15 per cent rise, mortgage rates are still very low. We saw some of the big banks came in with sub one per cent rates as a result of being awash with deposit balances.  

For those that rely on wholesale funding, the securitisation market has remained relatively strong in difficult times with a number of UK institutions, including specialist lenders and banks, undertaking successful securitisations this year.  

An interesting development has been investors applying non-financial factors such as environmental, social and governance into their analysis processes to identify other growth opportunities.  

The asset backed securities conference moved from the beaches of Barcelona to the streets and establishments of Edgware Road, but it was a very well supported event with a very upbeat feeling about it. 

Summary

With all its trials and tribulations, I think our industry as a whole can look back at its performance in 2021 with an awful lot of pride. We have seen some really great collaboration between businesses to offer support to each other, and maybe the ongoing pandemic has made us all feel a little more human again. 

We clearly are not out of the woods yet in terms of Covid. But if we show the same tenacity and vigour as we did in 2020 and 2021, we should all be able to look forward to a successful year in 2022 – certainly with some ups and downs along the way.  

May I wish all readers, colleagues and friends a peaceful and safe Christmas, and all the best for 2022. 

According to Aldermore’s first-time buyer index, a survey of 2,015 prospective first-time buyers, or around 45 per cent of prospective first-time buyers were rejected for a mortgage once, and another 20 per cent said there were rejected multiple times.

Poor credit history was the main reason followed by administrative error, with 21 per cent citing these factors respectively. Not having a large enough deposit came third at 20 per cent.

Credit history was cited as a big concern by over a quarter of first-time buyers, with two in five saying that improving their credit score would improve their chance of securing a mortgage.

Around one in five said that they feared that their credit rating had deteriorated since the pandemic started.

The most popular credit issues cited included overdraft with 29 per cent, student loans at 24 per cent, missed bill payments and employment gaps coming to 21 per cent respectively.

Around one in nine said they had taken out a payday loan, and seven per cent had a County Court Judgement and six per cent have experienced bankruptcy in their past.

Employment disruption impacted around half of prospective first-time buyers since the start of the pandemic, which heightened concerns around credit and borrower’s ability to secure a mortgage.

Over a third surveyed were put on furlough but had returned to work, but around nine per cent said they were still on furlough currently.

Around five per cent said they had lost income or been made redundant since the onset of the pandemic.

Other factors, which all were below 20 per cent, included taking out a payday loan, being self-employed, having irregular income, not always living in the UK, having a large amount of debt, too many credit applications, not being on the electoral roll and not earning enough.

Jon Cooper, head of mortgage distribution at Aldermore, said: “It’s easy to see from the research why many first-time buyers can feel disheartened by the challenges when looking for their first home. They shouldn’t despair though as there are many options open to them.

“Specialist lenders, like Aldermore, are opening up the market to those with complicated income streams or past credit issues ensuring that no borrower, whatever their background, feels excluded from the opportunity of getting on the housing ladder.”

He added: “I would also recommend getting help from a broker, which can be a great boost in navigating the many pitfalls and confusing processes. They provide a whole of market view and cut through the jargon to provide options specific to a new buyers’ individual circumstances.”

As the furlough scheme drew to a close in September, searches demonstrated growing numbers of people were either in a new job or had recently set up their own business, Knowledge Bank’s data suggested. 

Also among the top five sought after criteria in October were the terms ‘income multiple used for affordability assessment’ and ‘missed or late payments’. The criteria platform said this indicated people were stretching their incomes. 

This was reflected in the second charge market as the terms ‘capital raising for debt consolidation’ and ‘mortgage or secured loan arrears or defaults’ made the top five most searched. 

Matthew Corker, operations director at Knowledge Bank, said: “With the end of furlough, brokers are working with a number of clients who have started new roles, and lenders have reacted, loosening criteria for borrowers starting new jobs. 

“This follows a raft of criteria changes related to self-employed borrowers. By reducing restrictions imposed on freelancer applicants, lenders demonstrated that overall, they are confident that the economy is returning to normal.” 

“There are still a huge number of vacancies across sectors, and there will undoubtedly be more new starters in the coming months, so this may well be an area that lenders continue to look at,” he added. 

In general, the trend we have seen is that the shock of the pandemic has encouraged many people to be more cautious with their money. So, even while the home moving market was booming, many clients decided to increase the footprint of their existing property rather than engage in the competitive market and the associated costs of moving.

It’s definitely now the case that many people are seeing home improvements as a cost-effective way of progressing up the property ladder.

We’ve also seen many customers who have had to tighten their belts and live off of a reduced income for many months and this has jolted them into doing something to sort out their finances.

Unsecured credit has been so easy to access for so long and many people have taken on big commitments. The pandemic has created a lot more urgency for people to lower their outgoings.

Whereas borrower appetite remained strong throughout the pandemic, lender appetite definitely dipped last year. However, we’re now seeing many lenders returning to the product ranges they offered before Covid and often the rates are now even better.

It definitely feels like lenders want to lend at the moment.

Potential hurdles and forecast for next year

The one potential hurdle will be the impact of government support schemes coming to an end and whether this has a notable effect on unemployment. However, the uncertainty around this will be short lived and I think we will know pretty quickly what effect this will have.

It’s unlikely to change lender appetite overall, but it will make it harder for those clients whose finances suffer as a result.

However, while this may reduce demand amongst some potential customers, at the same time, we are now seeing client applying for second charge mortgages who were previously unable to access the market because they were on furlough or have had reduced income. This is likely to offset any reduction in demand caused by a potential increase in unemployment.

As we move into next year, I wouldn’t be surprised if we saw more lenders coming into the market, or broadening their proposition, to provide even more options for customers. The second charge mortgage market definitely continues to offer new opportunities to customers, to lenders and to brokers.

Speaking at Mortgage Advice Bureau’s (MAB) annual conference at the ICC in Birmingham this week, O’Leary said that as interest rates typically track with the economy so if economic growth in real terms is between one to 1.5 per cent, and inflation could possibly reach three per cent, then interest rates may reach four to five per cent.

“I think that is too aggressive, but I don’t think we can rule it out,” he said.

He added that over the next 12 months he expected the interest rate to be one per cent higher than it is today in terms of base rate.

O’Leary said that he expected an increase in rates in November, December, March and then possibly in August.

“The Bank of England will be slow about putting them up, they will make a move and see what happens to the economy, and then they’ll potentially move again in my view,” he said.

He said that inflation over the next couple of months would reach four per cent, and he said that there still some uncertainty about how long-term this trend would be.

“We haven’t seen that in a decade and only seen it a couple of times in the last few decades previously. How much of this is transitory and how much of it is permanent is still an open question,” O’Leary said.

He said at the start of the year central bankers and economists were leaning towards it being more transitory as it was a “strange recovery” and they were “temporary issues that will work themselves out”. However, now he said that the evidence suggest that the issue is “more persistent”.

He added: “I think inflation is going to be here to stay and I think we will reach four per cent or so over the next number of months that will drive down on incomes.”

O’Leary said that potential headwinds might also come from Brexit, which we haven’t seen “full effects of yet” as some import checks have been delayed to July, and the unwinding of government support.

O’Leary added that the labour market had also shown a V-shaped recovery and whilst there was still a lot of uncertainty around the ending of furlough, wider evidence suggested the UK was in “pretty good shape”.

He said that the number of employees had reached pre-pandemic levels. He added that the number of vacancies in the UK was currently 1.1m, and those on furlough when it ended was around 1.3m, and whilst it would not be a one to one it did show a strong labour market.

Strong housing market

Although there are some notable headwinds for the economy he said that positives that it had been an “extraordinary period” for the housing markets as rent prices, house prices and mortgage approvals all rose.

O’Leary said that over the last decade average mortgage approvals were around 60,000 to 70,000 but after the initial lull during the pandemic it spiked to over 100,000.

He said that a driver of this was people wanting more space, which he said was a “structural change” for the market, and banks continuing to lend.

O’Leary explained: “Banks have been able to pass on the very low rates to consumers. That has meant that even though house prices have gone up by 10 per cent per annum over the last 12 to 18 months we see a situation here where the serviceability and the sustainability of that debt has actually improved.”

He pointed to the loan payment relative to income, which he said was at an all-time high, whereas mortgage payments relative to income were at all time lows.

Affordability will tighten as rates rise

“The era of low interest rates has opened up a new cohort of buyers in the UK housing market at affordable levels, but that’s going to be a bit more difficult over the next 12 months. It won’t tear it off completely, but you should be aware of it,” he said.

However, he said that the low levels of stock would fuel house price growth over the next 12 months by around four to five per cent.

He added that banks were on the “look out for business” so “credit eligibility” would be quite open over the next 12 months.

O’Leary also noted that there was a cumulative £145bn in excess savings in UK households over the last 18 months, mostly from affluent households in the top 20 per cent of income distribution.

He said that some of this could be partly used to help younger dependents with housing deposits, which would also fuel the housing market.

He added that the UK government was “very supportive” of UK homeownership it would take proactive action to strengthen the market. He pointed to Help to Buy, which is due to expire in 2023, and said that if the government saw the market as weak it could be “extended in some form or fashion”.

Following the end of the stamp duty holiday on 30 September, there is an expectation that house purchase mortgage volumes will calm down and remortgage activity will increase as borrowers try to take account of the remarkable deals that are available.  

However, it is also likely that house price appreciation will now slow.  

It is important that positivity in the originations side of our lending industry is considered alongside other factors that could affect us in another way – the potential for a rise in arrears cases. 

Financial challenges for borrowers

There are an estimated one million people still furloughed. The full impact of this ending is yet to be known, albeit numbers of people on this scheme have dropped steadily month-on-month this year without too much adverse effect on overall arrears figures so far.  

We also have the £20 Universal Credit uplift scheme finishing on 6 October.  

Although on the face of it you may think this won’t affect too many mortgages, there are a significant number of employees that have their household incomes supplemented by Universal Credit and so this will undoubtedly have some sort of effect. The extent of this impact needs to be considered by lenders and those third-party service providers who manage mortgage books on behalf of lenders.  

This week Andrew Bailey, the governor of the Bank of England, admitted he thinks we are in for a potentially rocky road, with inflation heading towards four per cent and therefore there is a likelihood of a rise in rates before the end of year.  

If this does happen it will put significantly more pressure on borrowers, many of whom have never experienced rates rising. Intermediaries may therefore see an uptick in people looking to remortgage to find lower rates to help with affordability. 

Lender feedback for some time now, has been that there is a steady rise in the number of borrowers facing hardship and requiring assistance. Conversations with attendees of this week’s Global ABS Conference in London also reflected this.

Furthermore, recruiters are reporting that recruitment in the area of debt collections has increased dramatically over the past 12 months. 

We should therefore, as an industry, assume that arrears levels across the mortgage industry in all product areas will increase, but to what extent remains to be seen.  

It will be important that lenders and loan servicers focus on this area over the coming months and be ready for increased credit issues. Intermediaries should also be prepared for more calls from borrowers with increasing amounts of adverse credit. 

Mortgage Advice Bureau’s interim results, which showed record revenue of £92.4m and total adviser numbers of 1,800, also interested brokers.

Research by Halifax that homebuyers pay a £40,000 premium for more sustainable properties with higher energy ratings also grabbed readers’ attention.

Third of furloughed workers turn to remortgaging

Coadjute creates first UK cryptocurrency for mortgage transactions

Housing market to slow after summer growth peak – Hamptons

Furlough scheme and stamp duty holiday-end due tomorrow – analysis

Mortgage Advice Bureau reports record revenue as advisers hit 1800 – interim results

Homebuyers pay £40,000 premium for sustainable properties

The FCA gets tough, we have been warned – Blackwell

Clients are in charge of where they place business if an adviser leaves – Marketwatch

Evicting tenants can take up to a year and cost over £35,000

Aldermore brings back deals for borrowers with adverse credit

From the 1 October, the stamp duty threshold will return to £125,000 – or £300,000 for first-time buyers purchasing a property worth up to £500,000. With the government’s furlough scheme coming to an end too, how will the changes affect the mortgage adviser and banking industry?

The lender approach

David Kennedy, chief lending officer at Masthaven, said: “It’s important to remember that the financial impact of the pandemic is far from over. As an industry, banking touches almost everyone in the country and the sector has a societal responsibility to ensure the welfare of the UK after the end of the government’s relief schemes.

He said lenders need to make sure that their customers aren’t left feeling abandoned and often this means taking proactive action.

“By breaking down the stigma around financial difficulties and debt and identifying early any customers that might be at risk or struggling financially, lenders can ensure their customers get the support they need and head off potential problems before they worsen.”

He added: “Just as Covid aid schemes are wound down, borrowers and potential borrowers are facing an economy disrupted by supply chain issues and rising inflation. All these factors, combined with rapid house price growth, may mean that borrowers actually require more support than ever over the coming months.”

He said the specialist lending sector is well-prepared to tackle this challenge with a more flexible, pragmatic and personalised approach.

The outlook for SMEs

Chirag Shah, CEO at Nucleus Commercial Finance said: “The scheme has provided a lifeline to SMEs when they most needed it, allowing them to continue operating while preventing the UK from a major unemployment crisis.

“Although the outlook is more positive than it has been for some time, we’re not over the worst yet. The scheme’s end could leave many SMEs struggling to survive and exacerbate the financial and mental health challenges many business owners have faced over the last 18 months.

“Moving forward, government and industry must work together to communicate the support available to SMEs and demonstrate how they can help businesses thrive beyond the pandemic. This is where the alternative finance industry has a crucial role to play, in providing businesses with the flexible finance they need at speed, to help them deliver on their ambitions.”

Support for the SMI scheme

Lender trade bodies UK Finance and the Building Societies Association have called for important changes to be made to the Support for Mortgage Interest (SMI) scheme to help struggling homeowners as the furlough scheme draws to a close.

SMI is a government loan scheme which helps homeowners who are in receipt of benefits, but as it stands, they must wait 39 weeks to claim, during which time their financial situation may become so difficult that they are unable to remain in their home.

Paul Broadhead, head of mortgages and housing at the BSA, said: “With the end of the furlough scheme only a day away, there is a likelihood that unemployment will rise. Without urgent modification of the SMI scheme the risk of home repossession could become a reality for many despite the best efforts of lenders.

“Without the reforms, we expect more government funding will be required for the provision of housing benefits for former homeowners who were unable to get the financial support they needed, when they needed it.”

That is according to new research from Canada Life looking at how currently furloughed workers have supported their finances throughout the pandemic.

Its study found that 34 per cent have considered their remortgaging options in order to keep their finances afloat, though this was a particularly popular move for younger workers with 49 per cent of those aged under 35 adopting this route. By contrast just five per cent of those aged over 55 considered remortgaging.

Taking a break from mortgage repayments was also common among homeowners, with over a third having taken or considered taking a mortgage holiday.

However, making use of the equity held in a property is far from the most common measure employed by furloughed workers. Credit cards were the first choice for almost half, followed by 42 per cent who borrowed money from friends or family and the 41 per cent who took out a loan.

Alice Watson, head of marketing insurance at Canada Life, noted that while the furlough scheme had provided much-needed support to millions, those with fragile finances had had to look to other sources to boost their bank balance.

She continued: “As we navigate through the pandemic, it is likely many people will feel additional financial strain as the furlough scheme draws to close this month.

“Property wealth is playing an increasingly important role in financial plans. Anyone considering accessing their property wealth should speak to a financial adviser, whether that be remortgaging or equity release.”