Market review

Snapshots of 2022 so far

Craig Calder

Director, mortgages, Barclays

Whisper this quietly, but we’re fast approaching Q3, the Platinum Jubilee celebrations, and the summer holidays. We are also operating in a mortgage/housing market that continues to see sustained demand from a range of borrowers. It’s true that when compared to this time last year, these levels are obviously far lower – but chunks of 2021 and the later part of 2020 were, generally speaking, something of a lending anomaly due to the sheer volume of transactions taking place across all sectors.

MORTGAGE BORROWING AND APPROVALS

In terms of more recent figures, the latest Money and Credit report from the Bank of England showed that there were 70,700 mortgage approvals in March – down from just under 71,000 in February. However, this was higher than the average 12-month pre-pandemic level of 66,700 in February 2020.

In addition, mortgage borrowing reached £7bn in March, up from £4.6bn in February. This was the highest monthly level since the final month of stamp duty relief last September, when borrowing hit £9.3bn. Approvals for remortgaging rose slightly to 48,800 in March. This remained below the 12-month pre-pandemic average up to February 2020 of 49,500, but was the highest since February 2020.

These figures reflect rising levels of inflation, interest rate increases, and the beginning of escalating living costs. Inevitably, these factors continue to affect the lending landscape, although homeownership aspirations and the volume of purchase business remain strong.

INTERMEDIARY CASELOADS AND CONFIDENCE

These sustained activity levels were highlighted in the latest research from the Intermediary Mortgage Lenders Association, which found that the average number of mortgages placed per year by intermediaries fell only slightly in Q1 2022.

At the end of 2021, the average was 103 – a record high – and in the first quarter of 2022 that fell slightly to 97, matching the rates for Q3 2021. Despite a slight reduction in the average number of cases, the confidence of intermediaries in the business outlook for their own firms remained high. 62 per cent of intermediaries said they were “very confident” about the outlook for their firms, maintaining the same rates of confidence reported at the end of Q4 2021. Ninety-eight per cent of intermediaries were confident overall, with only a very small minority (two per cent) describing themselves as “not very confident”.

The average number of decisions in principle processed by intermediaries in Q1 rose by two when compared to the final quarter of 2021. Despite a drop in January (to 28 per intermediary), the following two months saw a strong rebound with February reaching 32 per intermediary and March hitting 37, a two-year high. This rise came alongside homeowners returning to the market, aiming to remortgage or secure new fixed-rate mortgages.

The data does outline a slight lull, but this was fully expected – and it’s encouraging to see advisers maintaining their momentum, with solid underlying demand continuing to underpin the mortgage market.

WELLBEING AND MENTAL HEALTH

Whilst the high and lows of the mortgage market are well documented, the impact of the pandemic, a hectic housing market, and ever-changing client demands continue to weigh heavily on the wellbeing and mental health of intermediaries and people operating across the industry. This is a topic that we tackled last year in a very well-received instalment of the Mortgage Insider podcast. The episode saw the Mortgage Mum, Sarah Tucker, share her experience alongside chartered psychologists Nana-Efua Lawson and Kate Oliver, who discussed the changes they’d seen in organisations and the coping strategies we could all use to build resilience. This episode is still available to listen to.

I’m referring to this after seeing a report released by the Mortgage Industry Mental Health Charter (MIMHC) that showed that while almost half of brokers are seeing improved mental health support at work (48 per cent), 23 per cent say their mental health is either “poor” or “of concern.” The report added that over half (55 per cent) are working more than the recommended weekly guidance, with 13 per cent saying they work 60 or more hours a week and a quarter never getting the recommended amount of sleep in any given week. Overall, brokers were said to be moderately happy in terms of their professional contentment. However, those who are disillusioned and considering their options had risen to 14 per cent (previously 10 per cent).

Everyone has their own unique set of circumstances to deal with, and this report really does underline the importance of individual and collective support in meeting the MIMHC objectives of improving and implementing best-practice mental health provision in the finance sector. Let’s hope that by focusing on and talking openly about this subject, we can all continue to take steps in the right direction. M I

The material squeeze on lenders’ margin for error

Steve Goodall

Managing director, e.surv

As I write this, the Financial Times is reporting that lenders are pulling products at very short notice and struggling to deal with a tsunami of applications, thereby imperilling fragile chains and increasing borrowers’ costs through delays. The average shelf life of a mortgage, according to Moneyfacts, is about 21 days.

Leaving aside the not inconsiderable operational impact of assessing these applications, I am reminded of the NINJA mortgage rush – no income, no job, no assets – between 2005 and 2007. It seems surreal that the market allowed things to get so out of control. There is a timely lesson to remember. Borrowers must be able to afford to repay, but the other side of that coin is the security. I wonder if our focus on the borrower and affordability will again come at the cost of really understanding the security. Each is just as important as the other.

Just when we assume we know everything about a property market, something reminds us that we should have taken more time to care. For example, cladding, fire safety standards, and carbon footprint are today having a material impact on value. A simple “Is it there?” check is not going to cut it. Technology can help, but only when the right data pools exist, and often we do not know what those are until the problem presents. Today’s AVMs are highly sophisticated tools that can process huge amounts of data – not just comparables in the area or proximity to schools, stations, and green space, but also an analysis of broader valuation trends to identify anomalies. But they do not come with insurance-backed guarantees, because they have to work on retrospective data. If that is all very positive, then so is the output. It would be remiss to assume that they can entirely replace the judgement of a surveyor when historic data is patchy, unreliable, or even incorrect.

Condition matters when assessing value, including those elements of a building that deliver energy performance. When you consider impairment risk, the market condition today of an EPC D-rated property will materially affect perceptions of its future value. It’s already happening.

From our own Property Watch research involving our employed surveyors, we know electric vehicle charging points, rightly or wrongly, are perceived to add value to properties. Should they? And how do we know they are legitimate if we cannot see them (especially on Google)? Kicking the tyres matters.

The asset matters and will increasingly do much of the heavy lifting for mortgage borrowers. In the current economic environment this becomes even more important for lenders. We are all too aware of the cost-of-living crisis and soaring inflation (seven per cent and rising), and wages just aren’t keeping up for most workers in the UK. At the same time, property prices just keep going up. The Office for National Statistics figures show average house prices rose 10.9 per cent in February over the preceding 12 months.

Consequently, those hoping to get onto the property ladder any time soon will be faced with tighter and tighter affordability criteria in the midst of lower disposable income, salaries being eroded by inflation, and deposit savings sitting in cash accounts paying a whisker over one per cent if you’re lucky. We are already seeing the effect this is having on lending patterns.

The Bank of England’s latest data set shows the share of mortgages advanced in Q4 2021 with loan-to-value ratios exceeding 90 per cent was 4.2 per cent – three percentage points – higher than a year earlier, and the highest observed since Q2 2020.

Within this, the share of mortgages advanced with LTVs over 95 per cent was 0.2 per cent, 0.1 percentage points down from the previous quarter. Meanwhile, the proportion of lending to borrowers with a high loan-to-income ratio increased by 1.7 percentage point on the quarter to 50.2 per cent in Q4 2021, little changed from a year earlier.

Borrowers with a single income and an LTI ratio of four or above accounted for 11.8 per cent of gross mortgage lending in Q4 2021 – a 0.5 percentage-point increase compared to the previous quarter. Borrowers with a joint income and an LTI of three or above accounted for 38.4 per cent of gross mortgage lending in Q4 2021, a 1.2 percentage-point increase compared to the previous quarter.

These numbers point to a material squeeze on margin for error – it is lenders that are being forced to soak up this added risk. Some can be passed back to the borrower through higher rates, but given the way the economy looks likely to go, ensuring asset risk is clearly understood is only going to get more valuable for lenders. M I

“The asset matters and will increasingly do much of the heavy lifting for mortgage borrowers. In the current economic environment this becomes even more important for lenders”