CoronavirusJun 11 2020

Advising clients as the housing market re-opens

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Advising clients as the housing market re-opens

This is just one example of the way in which the lockdown has affected borrowers.

And although the relaxing of social distancing rules means the housing market is beginning to reopen, it is unlikely its recovery will be like flicking on a switch.

It is early days, but some lenders are returning to the market with high loan-to-value mortgages – one of the first features to all but disappear at the start of the lockdown.

Key points

  • The housing market is slowly starting to re-open
  • Client enquiries have increased
  • The level of risk lenders take is unpredictable

Leeds Building Society says it has resumed lending at 85 per cent LTV as part of a refresh of its mortgage range.

Barclays has reintroduced a selection of new 85 per cent LTV mortgages back into its residential remortgage and purchase ranges.

Carl Shave, a director at Just Mortgage Brokers, says although he is seeing gradual changes, the higher LTV mortgages are still few and far between.

It is expected to be a slow process as lenders attempt to clear a backlog of an estimated 60,000 plus cases – according to numbers bandied around the market at the time of writing.

Not having the big lenders there will put the brakes on the housing, because a lot of first-time buyers need a 95 per cent product Nick Morrey, John Charcol

Mr Shave says it could be as much as a two-month backlog, from conversations he has had with surveyors.

He adds: “[Lenders] have had a huge amount to deal with. Many are now back in a position where they are able to offer physical valuations, but it is more about dealing with that pipeline business to get those cleared rather than lenders opening up floodgates [to new business].”

Nick Morrey, product technical director at John Charcol, adds: “Not having the big lenders there will put the brakes on the housing, because a lot of first-time buyers need a 95 per cent product and if they cannot get a mortgage it means far fewer first-time buyers to prop up the bottom of the market.”

Understandably, client enquiries have increased as the lockdown eases.

Clients’ uncertainty

Mr Varsani, a mortgage and protection adviser at London Money, says: “Some clients we had conversations with pre-lockdown in January/February are now coming back to us to see if they were to resume their search whether they would be in the same position.”

But uncertainty continues to drive the market and is affecting consumer confidence.

Mr Varsani says: “Clients often expect us to know what is going to happen in the housing market. Are we going to see house prices increase/decrease/stay the same?

“We have to tell them it is a bit of a guessing game at the moment.”

Meanwhile, one of the biggest factors affecting consumer confidence is job security, as furlough continues and chancellor Rishi Sunak warns of a recession, “like we have never seen”.

On top of that, the UK government has warned that coronavirus is likely to remain with us for several years to come.

As a result some brokers fear that amid efforts to manage risk this could impact valuations.

For example, surveyors may apply a downward pricing model to their valuations over fears of a deep recession and falling property prices. 

Mr Varsani says: “It’s great to see lenders offering higher LTVs, but in reality when the actual valuations go out, because many of these people have risk departments, will the valuations stack up to what they believe it is going to be, or will lenders start taking a future view around building in a bit of a safety margin?

“The risk departments of lenders have to be mindful of how they perceive that level of risk; it is an element of protection for the lenders and also maybe for the person buying the property as well.”

John Baguley, tangible assets valuation director at the Royal Institution of Chartered Surveyors, says: “Valuers reflect the market and assess market value for the asset, which would include some element of supply and demand. 

“As the market settles, valuers will be alert to whether there are isolated transactions above and below market value and will provide their professional opinion of value of what a willing buyer and seller will transact at.”

Another way the market could react is if loan-to-income multiples requirements became stricter.

Mr Morrey adds: “Given how low interest rates are, the cost of borrowing is very, very cheap, so I don’t think they need to start limiting affordability calculations at 95 per cent.

“They might be more stringent on the credit score, but that is just because they want good quality products.” 

Natwest says it has not yet considered reviewing the way in which it will assess affordability.

A Natwest spokesperson says: “We have been ensuring that our current policies support customers and take their current circumstances into account. 

“We also ensure that customers can afford their mortgage at a ‘stressed’ interest rate well above their current ‘pay’ rate.”

Brad Fordham, head of mortgages at Santander, says the bank’s affordability assessment will continue to be based on a customer’s current income and ensuring that any repayments are affordable in the long run. 

Mr Fordham adds: “We’ll continue to monitor the market in coming weeks and review our products, including LTV, in order to support new and existing customers in their home ownership journey.

“To ensure responsible lending we currently stress a customer’s ability to repay should interest rates increase or income falls, and there is no plan to add an additional requirement for a customer to have ‘emergency savings’.”

At Nationwide new customers can still apply to borrow up to 95 per cent LTV by telephone and via Nationwide Now – the society’s branch video service. 

And existing members moving home, borrowing more or switching products can continue to borrow up to 95 per cent LTV, while existing applications, where a product has already been reserved, will continue to progress.

Despite the anticipated recovery of the mortgage market, broker businesses have been deeply affected by the crisis.

Mr Morrey says, to sustain their businesses, brokers should engender deep relationships with clients to help them decide what is best for them in the coming years, while diversification is also important.

Some advisers are expanding into protection and general insurance.

At his company, Mr Varsani says as well as offering advice they have been a shoulder for clients to lean on, even if it does not earn any money.

Adapting to tech

With lockdown forcing many people to work from home, it has forced companies to adapt to a different way of working.

And while advisers still value face-to-face conversations, they welcome the increased use of the automated valuation model and desktop valuations.

Some lenders are also increasing their acceptance of more technology during a mortgage transaction – for example, accepting e-signatures on declarations.

Mr Baguley adds: “Markets are innovating and valuation is no different. This innovation will no doubt continue, and the role of Rics is to ensure standards are maintained and to provide guidance that allows professional valuation of residential property to continue, while protecting the public interest.”

Ima Jackson-Obot is deputy features editor of Financial Adviser and FTAdviser