"After a period of uninhibited access to the market, increased borrowing costs were always certain to cause some uncertainty."
The result of this confluence of acceleratory factors was a sustained period of consistent record-breaking metrics. Both house prices and transactional activity volumes saw historic peaks, with the market’s consistent growth continuing even into the new year. Recent data from Nationwide has revealed house prices are rising at 14.3%, the fastest annual growth rate in 17 years.
That said, one can’t ignore the economic headwinds at play indicating a more challenging climate for homeowners and homebuyers in the years to come, which lenders must be prepared to navigate. For one, with inflation rising, we have likely seen the end of 0.1% interest rates for the foreseeable future. The Bank of England has increased rates three times in the past few months alone, first to 0.25%, then 0.5%, then more recently 0.75%, in an attempt to rein inflation in.
This alone will mean a more complex borrowing landscape for homebuyers – after a period of uninhibited access to the market, increased borrowing costs were always certain to cause some uncertainty. As it appears, rates will continue to rise throughout the year and as the inflationary and macroeconomic circumstances evolve, lower confidence may set in.
Lenders on the mainstream and specialist sides of the market must be alert to these headwinds, and the challenges they will present to their clients. We must be proactive in assuring confidence outwardly to our borrowers and brokers and demonstrating greater flexibility to help navigate the complex environment.
Lenders’ responsibilities
Among mainstream lenders, there is a tendency to be hands-off with their borrowers. The relationship, in so far as active and personalised communication goes, often starts when an application is being evaluated, and ends when funds are deployed, with limited individualised attention provided thereafter, particularly if the borrower meets their payment schedule.
This culture suits the internal needs of the lenders who deal in volume, but customers may feel isolated. In an independent study we commissioned recently, taking in the views of 2,000 UK adults on mortgage lenders and products, the results painted a clear picture of borrowers feeling they could be better supported by their lender.
The research shone a light on the value that borrowers place on attentive customer care, with three quarters (77%) of respondents revealing that the lender’s quality of customer service was a crucial factor in selecting their mortgage product. Further, two thirds (65%) of those surveyed believed that having the support of a good lender is key to succeeding in the property market.
These figures elucidate the importance of transparent and holistic communication from lenders to borrowers – simply put, greater care should be put into the individual needs of each homeowner.
Expanding fixed rate product offerings
One of the most direct ways lenders can address concerns over spiralling interest rates is to utilise the financial instruments at hand to broaden the product offering to meet borrowers’ needs. Offering loans with fixed-rate interest over the entire term will, in such a climate, become increasingly alluring to borrowers who feel the cost of their loan may rise beyond their means.
The aforementioned study highlighted the preference of borrowers towards a greater choice of products. For instance, when naming the most important factors influencing their choice of lenders, the most significant factor was the terms of the loan itself – with 85% of borrowers identifying this as a critical issue. This was followed closely by 84% who were watchful of interest rates when selecting a mortgage product.
Of course, fixed-rate offerings can only go so far in firming up confidence in borrowers, meaning lenders must go further to support all customers through this period.
Improved customer support
Our research found that almost half (48%) of all existing mortgage customers feel their lenders do not provide appropriate support after the delivery of the loan, indicating a clear margin for improvement on the side of communication and customer care.
A majority (59%) feel lenders hold overly strict and uncompromising criteria for assessing the soundness of a loan application. Again, the fact that mainstream lenders have become more risk-averse in recent years presents added challenges to individuals with complex financial structures. Greater attention to the needs of individuals will become a necessity as interest rates rise, which will naturally diversify the range of relationships borrowers have with affordability and confidence.
Borrowers are facing a competitive and complex market– this much is certain. Lenders must therefore consider how they can be agile and better support their clients’ interests against a backdrop of evolving uncertainty. The research shows a clear preference among buyers to be treated as individuals by their lenders, with personalised communication likely to assuage many concerns borrowers may hold. In turn, lenders should ensure their product offering is aligned with the needs of today’s market by offering more flexibility through fixed-rate products which will help mitigate risk on either side of the transaction.
