Expert points to the use of one key method
With the Bank of England raising the base rate to its highest level in 15 years in June, there has never been a greater focus on mortgage affordability.
While affordability is arguably the most important part of the underwriting assessment carried out by the lender, it is also the part that brokers have the least ability to influence.
“For example, a 30% plus deposit helps with the overall underwriting process in terms of a lower loan-to-value (LTV), but that is obviously something out of our control,” said Michael Wales (pictured), mortgages manager at Progeny.
As such, Mortgage Introducer looked to gain insight into how advisers can assist their customers in tackling affordability challenges.
Tackling affordability
While brokers have little influence on mortgage affordability, Wales said what brokers can do is work with clients to ensure that they have a really accurate budget in place.
“Many lenders will wait for this to be covered during the recommendation meeting, but something firms could consider is sending the client a detailed budget planner template to complete in advance of the recommendation and application submission,” he said.
This places the responsibility on the client, Wales said, to sit down and thoroughly consider their current spending and projected costs of living in their new home, which he added can only be a good thing for client and adviser alike.
Once in receipt of the completed budget planner, Wales said brokers can carefully assess the figures presented.
“They can compare the figures with the client’s current bank statements to see if there are any significant differences from what they propose to spend, compared to what they are currently spending,” Wales said.
If there are discrepancies, then Wales said the reason for this difference can be discussed in more detail and within a broader context.
Wales said advisers tend to find that much of the essential expenditures, council tax and utility bills, are relatively straightforward to predict, and therefore often accurate. However, when crunching the numbers, he said clients may find that they have under- or even overestimated their spending on non-essentials, which they are generally less used to totalling up.
In the case of overestimating, he said any free income can then be used to, among other things, increase the mortgage repayment budget.
“Or, if they are considering a variable rate product, it can help ensure that if repayment rates rise, they have the free income to cover the increase,” Wales said.
Current market conditions
In the current challenging environment, with products being pulled at very short notice, Wales said brokers are generally having to spend a lot more time on each mortgage application.
As such, by having this budget work completed upfront, Wales said the time brokers spend with their clients can be utilised more efficiently.
“Completing a budget planner can additionally help clients to feel more engaged with the application process, and with their own finances, in a journey that can sometimes feel largely out of their hands,” he said.
Affordability is key, so Wales believes populating a budget planner with as much detail as possible is at the root of obtaining a successful mortgage offer in the current climate.
How do you believe brokers can help clients tackle mortgage affordability? Let us know in the comment section below.
