And as sectors such as hospitality, retail and heathcare are affected in different ways by the economic fallout of the Covid-19 pandemic, lenders could start segmenting the market by various traits.
HSBC also said it was looking to continue expanding its broker distribution to more firms and suggested now was a good time for advisers to be considering their fee-charging models.
Speaking at The Mortgage and Protection Event 2020, HSBC UK head of south region and large loans Amanda Fenner acknowledged self-employed borrowers had seen some of the biggest changes.
She recognised some brokers have been frustrated about how criteria for self-employed borrowers has changed across the industry since the pandemic began.
However, Fenner said HSBC had no plans to loosen its self-employed affordability criteria, adding the lender was keeping “really close” to self-employed lending.
“To get as up to date a view on a client’s business and compare it with pre-Covid times, business bank statements have become a must use tool, but to pull out the correct information and manually assess it can take an hour and a half,” she said.
“We’re determined to keep helping self-employed customers, but we need to find a way to get an updated view without these time-draining processes – so technology enhancements will be useful.
“Open banking would take it to 10 minutes, the outcome of the case will be the same but we’ll be able to deliver a much better customer journey.”
Pre-empt underwriter questions
Fenner urged advisers to detail the bigger picture wherever possible in lender systems when submitting applications and not to wait for an underwriter to ask expected questions.
“I think this level of detailed underwriting could be around for some time – a self-employed business owner doesn’t have to file their 2021 business accounts until January 2022,” she continued.
“But we need to get better at helping certain types of businesses where the picture is far less uncertain, so we could end up with a segmented lending approach.”
She continued: “We’re trying to be as pragmatic as we can with self-employed, we’ve tried really hard not to say here’s a one-size fits all, we really are looking to you to provide us with more insight with supporting documentation to make the right decision for the client and that will continue.”
Tighter affordability
On changes to affordability, Fenner acknowledged affordability has definitely reduced across the market.
“You’re unlikely to see that come back until employment feels more solid and lenders want more of your business,” she noted.
“When lenders are ready to compete again for business you may see the reintroduction of annual bonuses to lending policy, but the likelihood is we’ll want to see a bonus paid in 2021 – that’s in order to be comfortable this isn’t an income they are likely to lose.
“In some cases that could mean another six or more months away, so it’s likely there will be a lull where bonuses are being paid.”
‘Engage more brokers’
During the question and answer session, several advisers asked if HSBC would be expanding its distribution to more smaller networks and directly authorised firms.
Fenner said the bank was “looking to engage with more brokers” and while she couldn’t confirm any exact plans, she admitted further broker rollout was “something that’s always on our radar”.
Fenner continued: “Brokers have done an incredible job and I can see clients staying loyal for a long time.
“As those clients who went direct now find themselves waiting three or four weeks just to get an initial meeting, so the intermediary market looks set to be strong for some time to come with more than four out of five mortgages being written by a broker.”
She added: “If you answered no to ‘Will you be charging a client for the professional advice you give?’ now might be the time you want to re-address this question and make a decision that best suits you, your business and your clients.
“There’s no right or wrong answer, but reflecting on it is surely a must.”
Elsewhere in the session, Fenner acknowledged HSBC was keen to re-enter the 90 per cent loan to value (LTV) space but needed other lenders to join it to avoid being overwhelmed with demand.
However, the lender said it would not be diving straight in to the 95 per cent LTV sector and tighter loan-to-income (LTI).
Speaking at The Mortgage and Protection Event, HSBC UK head of south region and large loans Amanda Fenner confirmed it was only the level of demand keeping HSBC out of the 90 per cent LTV space.
She highlighted that at present 23 per cent of all illustrations produced for the lender were for the 80 to 85 per cent bracket.
“So demand for lower deposit lending is still really high and we eagerly await the arrival of more lenders back into this space and will be back supporting the market as soon as that happens,” she said.
She added: “As soon as we see some of the other top six lenders come back into that [90 per cent LTV] space, that absolutely puts us in the position where we feel comfortable to go back in and service the market that we really want to.”
The issue of having enough lenders re-enter 90 per cent LTV lending to provide enough capacity for the demand without breaking competition laws has been cited by several participants in the last few months.
Negative equity risk
But Fenner also noted there was hesitation across the market about going into the highest 95 per cent LTV sector as house prices were very uncertain, with steep rises recorded by house price indexes since lockdown ended.
“We don’t really know what the effects are going to be post-stamp duty holiday and some of the analysts are saying there could be a drop,” she said.
“Some people are even talking about certain types of properties or certain geographical patches, that’s something to keep an eye on.
“What we certainly wouldn’t want to do is put ourselves in a position where customers were potentially in danger of going into negative equity, so I don’t think 95 per cent LTV lending is going to come back anytime soon, but it’s still one we’re watching.”
The Mortgage and Protection Online 2020 event will be taking place on Wednesday 11 November with a host of speakers covering the key topics from around the industry.
Amanda Fenner (pictured), head of south region and large loans for intermediaries at HSBC UK, will be hosting a video presentation called: Creating lasting value and deeper customer relationships in stormy waters.
She will discuss how and why advisers are so important to navigate the mortgage market at present and what borrowers need from one.
Fenner will also explain how you can ensure the value brokers create today with clients can last a lifetime.
Free to attend
The Mortgage and Protection Online 2020 event is free to attend and includes three distinct areas:
- The auditorium: delivering a thought-provoking conference programme with live Q&A with the speakers
- The exhibition area: enabling delegates to interact with lender BDMs on their virtual stands, as well as downloading or watching tailored content
- The networking area: delegates can engage with their peers, sponsors and several interactive polls.
For more information, and for latest event updates visit: https://www.mortgagesolutions.co.uk/events/mortgage-protection-event/
In its third quarter results, HSBC reported a 13 per cent share of the UK mortgage market – almost double the 6.9 per cent share of the market it reported until June, and significantly higher than the 7.5 per cent it claimed in 2019.
Based on figures for 2019, under normal circumstances, if HSBC were to maintain that share for the whole year it would potentially become the second largest lender in the market – leapfrogging Nationwide, NatWest, Santander and Barclays.
Bank of England data showed the value of new lending in July was £17.7bn with August at £18.8bn as the market continued to recover from the Covid-19 lockdown.
And there were 129,424 mortgage approvals in August on par with the typical monthly numbers last year.
Mortgage balances up £3.9bn
In it’s Q3 data, HSBC noted its UK mortgage book balance had increased by approximately £3.89bn ($5bn) during the three months of July to September
The bank said it had seen “strong momentum as we continue to support homebuyers. Additional growth [is] expected from lockdown easing supported by stamp duty changes.”
The bank also said it had 17,000 UK mortgages worth around £2.88bn ($3.7bn) in customer relief at the end of September, around 2.6 per cent of its loan book.
This is down from 65,000 payment holidays during the pandemic which accounted for around 10 per cent of its UK mortgage borrowers.
Globally, it had 76,000 mortgage borrowers in some form of forbearance for mortgages worth £8.94bn ($11.5bn) making up 3.5 per cent of all mortgages.
Net interest margin for its UK bank continued to fall, hitting 1.6 per cent, down from 1.68 per cent at the end of June, which had seen a notable drop from the recent peak of 2.1 per cent in March.
This reflected a trend across the business with the net interest margin down 36 basis points to 1.2 per cent, with net interest income down £1.09bn ($1.4bn) as global interest rates fell because of the Covid-19 outbreak.
Losses at ‘lower end’ of scale
Overall, while profits and revenue were all down significantly on the three months compared to the same period last year, the lender said it was a “promising” performance as loan losses for 2020 are trending towards the lower end of the £6.2bn ($8bn) to £10.1bn ($13bn) range.
Profit after tax was down 46 per cent to £1.55bn ($2.0bn) and profit before tax was down 36 per cent to £2.41bn ($3.1bn), mainly from lower revenue.
Reported revenue also fell 11 per cent to £9.25bn ($11.9bn), reflecting the impact of interest rate reductions on our deposit franchises across all global businesses, partly offset by favourable market impacts in life insurance manufacturing.
Group chief executive Noel Quinn said: “These were promising results against a backdrop of the continuing impacts of Covid-19 on the global economy.
“I’m pleased with the significantly lower credit losses in the quarter, and we are moving at pace to adapt our business model to a protracted low interest rate environment.
“The group’s capital and liquidity ratios strengthened further in the quarter despite the challenging economic conditions.”
Quinn noted the transformation of the group away from interest-rate to fee-generating business was accelerating.
He added a decision on whether to pay a dividend for the 2020 financial year will depend on economic conditions in early 2021, and be subject to regulatory consultation, with a conservative dividend paid if circumstances allow.
At 85 per cent LTV, the lender has cut five of its products by 0.1 per cent.
This includes the fee-free two-year fix which is now at 3.14 per cent while the five-year version is at 3.34 and the five-year with a £999 fee is at 3.09 per cent.
In the 60 per cent LTV range the biggest cut is 0.25 per cent off the two-year fix with £999 fee to 1.34 per cent.
The two-year fix with no fee, two-year tracker, and five-year fixes with £999 fee and no fee have all been reduced by 0.20 per cent, with the two-year fix at 1.79 per cent and five-year versions at 1.44 per cent and 1.99 per cent respectively.
Meanwhile, it has also increased all rates in its 80 per cent LTV range by 0.2 per cent.
The standard two-year fix with £999 fee is now at 2.09 per cent and the fee-free five-year deal is at 2.74 per cent.
An HSBC spokesman said: “We make decisions on rates based on a number of factors and keep the proposition under constant review.”
HSBC has increased its 85 per cent LTV new business range by between 0.2 per cent and 0.3 per cent.
The biggest rate increase has been applied to the bank’s two-year fix with a £999 fee rises from 2.54 per cent to 2.84 per cent.
Its fee-free five-year fix has increased by 0.2 per cent to 3.44 per cent, with all other products in the range, including the tracker, rising by 0.25 per cent.
HSBC has also increased its 90 and 95 per cent LTV product switch ranges for existing customers by 0.1 per cent.
Santander
Meanwhile, Santander is increasing its 85 per cent LTV two- and five-year fixed rates by up to 0.15 per cent.
The two-year fix at 2.79 per cent with a £999 fee has increased by 0.10 per cent, while the five-year fix at 2.94 per cent with £999 fee up by 0.15 per cent.
For product transfers increases of 0.05 per cent to 0.20 per cent have been made up on selected residential fixed rate and tracker products to 90 per cent LTV.
Its two- and five-year fixed fee saver and standard deals within this tier have seen rate increases, as has its five-year fixed premier exclusive deal at 60-90 per cent.
These products now have rates varying from 1.99 per cent for those with larger deposits and 3.34 per cent at higher LTV tiers.
The two-year tracker between 60 and 90 per cent has also gone up in rate.
At 60 per cent LTV, the two-year tracker rate is now 1.79 per cent and 1.99 per cent at 70 and 75 per cent LTV. At 95 per cent LTV, the rate for a tracker mortgage is 2.89 per cent.
The bank has recently made a number of changes to its mortgage range in an attempt to manage demand, including the withdrawal of its 90 per cent LTV deals for new customers.
HSBC’s 90 per cent and 95 per cent LTV mortgage rates are only available to existing mortgage customers who are switching rates.
These changes are effective from today.
Earlier in the week the lender stopped taking new business at 90 per cent LTV, noting that it had seen “very significant increased demand for higher LTV mortgages”.
Rates have now been increased by up to 0.25 per cent as it is understood the lender took several factors into account, including managing demand following its announcement this week.
At 85 per cent, LTV two-year fixes have been increased by 0.15 and 0.2 per cent with a £999 fee and without a fee to 1.99 and 2.44 per cent respectively.
Likewise, five-year deals have increased by 0.15 and 0.25 per cent to 2.49 and 2.79 per cent respectively, while the two-year tracker has been increased by 0.25 per cent to 2.29 per cent plus the Bank of England base rate.
Rates on products in the 60, 70, 75 and 80 per cent LTV ranges have all been increased by between 0.1 per cent and 0.25 per cent.
The 90 per cent LTV range is still available for internal customer switches and these rates have also been increased by up to 0.25 per cent.
The lender said it was making the move, which came into place today, as a result of “very significantly increased demand for higher LTV mortgages”.
It will continue to offer products above 85 per cent LTV for existing customers switching rates.
Customers with appointments in place for mortgages over 85 per cent LTV and pipeline applications from brokers and customers that have already been received will be progressed subject to the usual checks, it added.
The lender had been one of the few to continue offering 90 per cent LTV mortgages for new customers since the coronavirus pandemic hit, but has finally had to take a step back.
Significant service level consequences
HSBC UK head of buying a home Michelle Andrews said: “While the worst effects from Covid-19 appear to have thankfully passed, the country and the housing market have yet to return to normality.
“Mortgage market participation has been volatile at higher LTVs which has led to significant consequences on service levels and our colleagues for those who, like HSBC UK, have remained open for business at those higher LTVs.
“This is a temporary change for us. We look forward to other lenders joining us back in the market as well.”
Andrews noted that easing lockdown and the stamp duty cuts had “injected fresh impetus” to first and second-time buyers who may have a smaller deposit.
However, she added the increase in demand meant the lender was not able to satisfy service levels and did not want to face putting property purchases at risk.
“Offering a competitive product and being able to provide a great and timely service is extremely important to us and the recent significant uptick in applications has meant that we have not been able to consistently meet the high standards we set ourselves, which is not always a positive experience for our customers and can delay and put a property purchase at risk,” Andrews continued.
“As such we continually review our proposition and service levels and adjust how we are working and try to manage the inflow of new cases.
“Temporarily reserving our mortgages at over 85 per cent LTV for those switching rates only is not a decision we have taken lightly, but one we will be reviewing regularly.
“We remain open for business and continue to support our customers and the wider housing market.”
