Brokers have suggested lenders make use of pricing strategies to manage business volumes amid speculation they are resorting to delay tactics and suddenly withdraw product offerings instead, causing frustration to the advice process.
So this week, Mortgage Solutions is asking: Why aren’t lenders using price to manage service levels and risk?
It’s hard to comment across the market on what other lenders are doing but as for the suggestion that lenders are using delay tactics at underwriting stage, I don’t feel they are doing this or unfairly declining clients.
We’ve seen a lot of change in the marketplace from multiple lenders around the loan to values (LTVs) that they want to operate in and the pricing structures.
Especially for us, we always look forward to try and match our capacity with the products and LTVs we have without breaking service levels. We don’t want to fall into either six or seven-day backlogs. We try to look at the capacity we’ve got and price accordingly with regards to market.
We control flow in our core products, for example at 65 to 85 per cent LTV, then when we want to control volume especially in the 90 per cent space, that’s when you’ll see us having two-day windows.
We do try to use price as much as possible. It’s one of the levers you can pull – I would hope brokers would not be open to changing criteria to control volume.
The benefits of limited tranches is there is a defined period where brokers know they’ve an opportunity to submit a case; they know the product won’t be pulled at very short notice.
I can’t speak for the market but for us, pricing is a very accurate means to control volume. We like criteria to be open and straightforward for brokers, that’s why we would be reluctant to change it frequently.
Lenders are using price as the primary lever as well as product withdrawals on LTV parameters to manage volume.
September has seen record levels of activity at Just Mortgages and this has clearly created a logjam with lenders.
While some lenders have been fantastic supporting brokers to deliver for clients, the issue of demand outweighing supply is being acerbated by bigger lenders leaving the high LTV market.
Lenders are pricing to manage their service levels and risk, with plenty raising rates to help curb the amount of applications they are getting.
The obstruction in the market currently is being caused by some big lenders pulling high LTV products. There are still thousands of clients approaching us with 10 per cent deposits who can clearly afford their mortgage payments and are therefore safe investments and they are currently being blocked from owning a home.
Lenders could solve this issue by pricing for the level of risk associated with a high LTV product.
The existing flash sales of these 90 per cent LTV products are seeing huge demand and selling out within hours of hitting the market but the market needs a stable supply of these products to support current customers.
Brokers are not concerned about service level agreements being stretched, delivering for the client is more important. Timing is not the issue.
We understand lenders are currently managing their levels of risk and high levels of activity, but to deliver for those unfairly being stopped from owning their own, we need lenders to re-enter.
The market is in constant flux and lenders with older, legacy systems appear to be struggling with the increase in demand and having so many staff working from home.
This naturally leads to delays, but these are unlikely to be intentional.
It has nothing to do with lenders unfairly declining clients but says more about their ability to cope with the challenges that have been put upon them due to the pandemic.
One could argue that artificially inflating prices would be unfair.
What is important is that lenders are completely transparent about their pricing, criteria and service level agreements (SLAs).
At Landbay, it is a matter of pride to ensure we always stay within our SLAs. Occasionally during periods of high volume, we will alter SLAs but we are always transparent so that we always keep our promises to intermediary partners.
Every decision a lender makes is made on an acceptable risk basis.
Each lender has different variables and value systems as to what is low, medium and high-risk depending on their funding and profit margin strategy. This determines where they pitch their products in the market.
Each lender needs to weigh up at any given time how much risk to take, which in turn influences who they lend to and their pricing.
It is right for intermediaries to query and challenge lenders as to their criteria and pricing, if they become indifferent to a lender, that’s when a lender has to really worry.