The real estate market has been busy
The UK real estate market has been busy during the pandemic, according to Alpa Bhakta, chief executive of Butterfield Mortgages Limited.
Bhakta believes that the remarkable growth, which now extends over many years, can be largely attributed to several familiar factors.
These include high and rising demand, alongside limited housing stock, with the addition of incidental factors including the stamp duty holiday and the impact of remote working on buyer preferences.
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“Another key factor, but one that is less often discussed, is the favourable borrowing conditions over recent years,” Bhakta said.
When compared to the 1990s and early 2000s, interest rates have been extremely low this past decade, while the variety of lenders and products to choose from has increased.
Of course, market conditions are always fluctuating, and that is particularly apparent right now, according to Bhakta.
In response to spiralling inflation, the Bank of England has raised interest rates three times since December last year, from 0.1% to 0.25%, then to 0.5% and finally to 0.75%. There is no indication that these rate hikes will be the last we see; indeed, many anticipate we will see more over the course of the year.
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“Even though well below the rates seen in years gone by, these headwinds will naturally mean a more challenging borrowing market,” Bhakta said.
She went on to say that, as a result, mainstream and specialist lenders must, then, pay careful consideration to how their clients can be best supported through these challenging economic times.
Fixed-rate products
Bhakta said that one of the more direct ways to better support customers is to reconsider the financial products on offer.
She believes that as the cost of borrowing increases, more prospective buyers will fear the terms of a loan may swell beyond their means.
“Offering products with fixed-rate terms for a longer period will make lenders more appealing to many borrowers, offering them greater certainty at a time when uncertainty is prevalent,” Bhakta added.
Butterfield Mortgages Limited commissioned an independent study, taking in the views of UK mortgage customers, and found 85% identified the terms of the loan as the single most important factor influencing their choice of mortgage product and provider.
This was followed by 84% whose choice of loan was determined by interest rates. Bhakta believes this clarifies the enduring significance of providing competitive products to the market, and should guide the thinking of lenders in the current climate.
“Naturally, utilising financial instruments is not the limit to what lenders can do to shore up confidence among borrowers,” Bhakta said.
Indeed, while longer fixed terms may assure new customers, existing ones on variable loans will continue to watch rising interest rates carefully, so Bhakta believes that lenders must also ensure they are managing customer relationships carefully.
Supporting existing customers
Bhakta explained that the lending sector has a reputation for being fairly hands-off with customers.
In many cases, the relationship between lender and borrower begins with an assessment of an application, and ends with the deployment of their loan. If the payment schedule is maintained, there can be minimal ongoing communication between both parties.
“In the aforementioned survey, borrowers were clear in representing the importance of robust customer service,” said Bhakta.
More than three quarters (77%) of UK mortgage customers felt that the quality of service on offer was important in guiding their choice of provider. However, almost half (48%) feel that support from their lender after delivery of a loan is lacking.
Bhakta believes that given the current macroeconomic trends, this is something that ought to be addressed.
She went on to say that in the weeks and months to come, many borrowers will be seeking information, or perhaps even advice around other available products, to help them navigate the challenges of rising inflation and interest rates.
“Lenders must, therefore, double down on their communication efforts,” Bhakta added.
The cost of borrowing has risen and is likely to rise further. However, Bhakta said that we ought to acknowledge that interest rates are still extremely low compared to what was the norm for decades, when a base rate of between 5% and 10% was common.
“That said, even small fluctuations will have ramifications on those looking to obtain or repay a mortgage; lenders that recognise this point and best support customers will likely develop far stronger relationships, which will benefit both parties in the long run,” Bhakta concluded.
