SpecialistAug 9 2022

‘First few of many’: Four lenders pause new mortgage business

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‘First few of many’: Four lenders pause new mortgage business
Chris Ratcliffe/Bloomberg

The latest to place the brakes on new mortgage business was Suffolk Building Society yesterday (August 8), four days after Coventry Building Society and Saffron Building Society both did the same.

It comes two weeks after The Cambridge Building Society stopped accepting new applications from brokers - though Cambridge is still accepting new clients directly.

This was absolutely down to service levels. We needed to press pause to keep service levels at what people expect. Coventry Building Society spokesperson

All four lenders still had these temporary pauses in place as of today (August 9). Some brokers are now predicting more lenders will follow in their footsteps, describing the mortgage market as “a shambles”.

A spokesperson for Saffron, which is still accepting self-build applications, said it was “playing it by ear” as to when the pause might be lifted.

“The backlog is intense for the team and the brokers so we’re trying to handle it carefully,” they said.

“We only had to do this because of others doing much the same, skyrocketing the applications for specialist mortgages.”

Specialist lender Hodge for Intermediaries withdrew from processing new residential mortgage applications on June 16 and resumed taking on new business more than half a month later on July 4.

Coventry intends to pick new business back up sometime later this week, while Cambridge has not yet set a date. Suffolk said its team is working hard to clear its backlog of existing deals with a view to getting all cases to offer and completion "as quickly as possible". But again, no firm date is in place.

A Coventry spokesperson told FTAdviser: "This was absolutely down to service levels. We needed to press pause to keep service levels at what people expect.”

The lender also confirmed it was hit with IT issues last week, making it even harder to meet service levels.

You don’t know if it’s going to be two days or two weeks.David Hollingworth, L&C Mortgages

One source told FTAdviser more lenders could be closed to new business, but are not publicly confirming it. 

‘These are the first few of many’

Last week, the Bank of England raised interest rates by 0.5 percentage points, fueling the latest pressure on lenders to reprice their mortgage interest rates.

As a result, “lots of people are panicking” according to Nottingham-based broker at Harmony Financial Services Imran Hussain.

“Those on variable rates are going to start feeling the pinch, going from [between] 2 to 3.5 per cent to 5 or 6 per cent. They're going to see their rates dramatically increase.”

Panic among existing customers is part of what is weighing so heavily on lenders’ service levels, with high street lenders such as NatWest having cited high call volumes for months on end.

I wouldn’t be surprised if others follow suit, some lender SLAs at the moment are at four weeks to just carry out an initial review.David Gissing, London Mortgage Partners

“These lenders which have stopped accepting new business are the first few of many. My gut feeling is there will be others.” said Hussain.

With rates only going up, Hussain added that no lender wants to offer a leading rate and that the percentage point differences between average and leading rates are shrinking.

“Criteria and service levels are going to be the discerning factors now,” he explained. “We will see building society lenders especially pausing for 48 hours just to catch up.”

Hussain said the big six lenders will reprice themselves out of the market.

“They won’t be chasing rates. People will use them because they need to. We’re not going to see too many lenders trying to be the cheapest if service levels are above 72 hours.”

Big lenders are also changing document requirements in a bid to stem the flow of calls.

As of yesterday, NatWest required three most recent payslips on every employed application, whereas before a client with a 25 per cent deposit might have only needed to produce one most recent payslip.

“They’re going back to basics. That will probably stop them coming back to brokers with additional questions,” said Hussain.

Mortgage sales head David Gissing at London Mortgage Partners also thinks these are not the last lenders to withdraw from new business.

“I wouldn’t be surprised if others follow suit, some lender SLAs [service level agreements] at the moment are at four weeks to just carry out an initial review of documents and send a checklist of what’s required to underwrite,” he explained,

“Only a handful of lenders are maintaining good SLAs at the moment.”

Knock on effect to clients

With rates being pulled at hours’ notice, affordability tightening, lenders underwriting more stringently and ever-changing criteria, it is becoming harder for both brokers and their clients to navigate the mortgage market, according to Gissing.

“The knock on effect is clients left in the unknown without clarity, awaiting a mortgage offer for longer than we’re used to,” he said.

“Because of the speed we’ve seen rates rising in the last few weeks, if a lender does decline an application for any reason, clients are having to apply again with a new lender and are finding that rates for new applications are being offered rates significantly higher than when they made their initial application.”

None of it makes any sense, and it keeps getting worse.Lewis Shaw, Shaw Financial Services

Mansfield-based broker Lewis Shaw said “it's getting bonkers” and that he cannot understand why lenders are acting as they are. 

“We know mortgage approvals are reducing, we know the market is slowing and we know stock is at very low levels,” he said.

“The world has returned to normal and yet service levels are worse now than they were during the pandemic. None of it makes any sense, and it keeps getting worse.”

A spell out the market for some lenders could impact clients if a broker has not been able to secure a rate with a lender which, because they are a specialist, was the only one to have accepted that particular client.

This is an impossible situation for lenders.Chris Sykes, Private Finance

“That could be frustrating, as you don’t know if it’s going to be two days or two weeks [that they’re out of business],” said L&C Mortgages director David Hollingworth.

“These withdrawals need to be temporary. If it's only a few days, it should be beneficial for everyone, versus getting into a quagmire.

“Lots of lenders are making more targeted withdrawals. HSBC has removed things like three-year fixed rates. If you have to keep repricing, it makes sense to concentrate on core rates.”

'It isn't 2008'

For many lenders, it is a case of simply not knowing how to price themselves in an environment where everything is moving so quickly.

Private Finance director Chris Sykes said: "The key message here is, it isn’t 2008. Lenders still have billions to lend and aren’t running out of money any time soon.

"It is just many lenders are too busy and playing catch up as well as the fact many don’t know how to price themselves at the moment due to how quickly things are moving."

Sykes said it is "the impossible situation for many lenders".

"They are basically needing to price now in many circumstances for mortgage offers which often last for six months," he explained. "So they don’t want to be in a situation, which many have seen recently, where they are lending at a current loss to margin six months on."

Lenders will need to keep dipping in and out if they want to maintain service levels, according to Sykes, as well as for their own staff preservation.

"Some lenders will do this by stopping things. Others will do this by pricing themselves out of reasonable demand, while still picking up some business at higher rate levels which are more profitable."

ruby.hinchliffe@ft.com