Business development director for IRESS explains how the firm's latest survey will look at the opportunities and challenges faced by lenders
For the past decade, we have carried out an annual mortgage efficiency survey, looking at the challenges and opportunities faced by lenders across the market.
Crucially, our research is intended to understand how lenders are responding and how able they are to do this.
Over the past couple of years, various trends have been gathering momentum for banks, building societies and non-bank lenders alike.
Here’s an overview of what we’re watching for in this year’s upcoming survey, reflecting the priority areas lenders are focused on in 2023.
Firstly, we will look at the impact of the economy on strategy, affordability and remortgage.
We are all acutely aware that affordability is going to be key this year, not only for those who had hoped to purchase their first home but also, perhaps more problematically, for those whose fixed rates are coming to an end in the coming months.
Given the rising cost of living, soaring energy bills and higher food costs, adding in much higher mortgage repayments to the mix will be simply unaffordable for many borrowers coming to the end of their deals.
Remortgaging is already much harder but it’s going to get harder still over the course of the year.
Not only are higher prices here to stay, inflation continues to push the cost of living up steadily.
The consumer price index is still running over 10% and, despite assurances from the Bank of England that it should fall back down to around 4% over the next 10 months, there’s no getting away from the fact that household affordability is set for a further squeeze.
Borrowers on higher loan-to-values are going to struggle the most, especially if moving lender only to find their home has come down in value. We are expecting a much larger proportion of those remortgaging to have little option but to revert onto SVR as a result of such large pricing shifts. How lenders manage this transition and the flexibility they can afford borrowers in difficulty is going to be a key priority this year.
Secondly we will looking again at the progress of sustainability in mortgage lending activity. Back in 2019 when Theresa May signed the UK up to a net zero pledge by 2050, the green agenda went into full swing. Post COP26 in Glasgow in the autumn of 2020, the momentum to become a world leader in cutting carbon emissions was unparalleled anywhere else in the world.
COP26 was delayed until the following autumn and was, by all accounts, a success – despite carbon cutting commitments falling short of the high expectations set by the UK government.
It felt as though green was back in centre stage, with increasingly tangible targets coming closer and businesses beginning to make meaningful changes.
Has the cost of living crisis overtaken the green agenda? Is dealing with debt and the prospect of job losses now understandably where the majority of households and lenders are focused?
The reality is that the move towards key dates in the road to net zero is unrelenting. Several are looming large already, particularly in the buy-to-let sector where minimum EPC standards come into force on all new tenancies in under two years. The steep rise in gas prices over the past year has also served to push energy efficiency up many people’s agendas. The cost of replacing gas boilers with heat pumps and insulating homes sufficiently is, however, a big barrier for the majority of property owners.
How lenders support the transition for their customers is front and centre over the coming 24 months. How the industry builds on the provision and design of green mortgages will be key – cost is where incentives must lie but there must also be diversity and choice.
Finally, for decades now the key drivers of change in the mortgage market have come from the supply side in the form of monetary, fiscal and regulatory change. This year we are keen to understand how lenders will adapt to the new era of Consumer Duty – what it means for them and how they will deliver the evidence of compliant behaviour – from origination to forbearance – and handle increased scrutiny of vulnerable customers.
They say where adversity is… opportunity lies, and while the current climate feels rather bleak, if you believe the clickbait headlines, actually, the industry is in good shape. Thanks to foresight and experience, lenders have strong capital buffers and the will to support customers through what will be a difficult time for many. The market is changing and so are borrower needs. That presents an opportunity for lenders prepared to invest in meeting those needs.
