10 Skyline | Edition 7 | Winter 2024
With higher interest rates and no fall in house prices, borrowers have needed to look at longer terms for their loans, with some looking at 40 year mortgages to clear the affordability hurdle. These borrowers will need advice throughout the term of their loan to ensure it is repaid before they reach the end of their working lives.
Regulatory environment
The regulatory framework governing mortgages continues to evolve to address the challenges and risks in the housing market. The Financial Conduct Authority( FCA) and the Prudential Regulation Authority( PRA) continue to play pivotal roles in ensuring market stability and consumer protection.
The more rigorous affordability assessments brought in during 2014 ensured borrowers can manage repayments even in higher interest rates environments. The stress testing against higher rates has provided a great buffer. We have, however, seen one of the macro-prudential controls removed – requiring stressing at 3 % over the revert to rate. With interest rates hopefully near their peak a more balanced 1 % over the revert to rate seems more sensible. However, the cap of no more than 15 % of a lender’ s funds being advanced at more than 4.5 x income is a control to try to limit house price growth – which seems a sensible control to continue to be applied.
The introduction by the FCA of new principles encapsulated within‘ Consumer Duty’ raises the bar and we will see continued action by the FCA linked to this in the coming years. This increases the emphasis in products delivering fair value, that they should meet the customers wider financial objectives and they need to understand what they have bought and why the product is relevant to them. Linked to this, we are seeing increased emphasis on discussions to ensure that the mortgage is still repayable even if life events get in the way. Life cover, critical illness protection and income protection policies are all more at the forefront of discussions to ensure that in the event of bad events, people still have a home to live in. As an industry, we need to be better at explaining why these products are relevant to the average consumer.
The private rented sector remains a key source of flexible housing for many who struggle to save a deposit or meet the tight affordability tests on mortgages. However, local authority licensing, new building and fire safety controls combined with major
This has the potential to bring the five-month conveyancing process down to five weeks. A game changer for all in the industry and one we must embrace
changes to tax treatment have combined to challenge this sector. It is a vital component of the tenures available and government needs to ensure it is protected to keep a flexible workforce able to move to where they are required.
Technological advancements
Whilst technology has yet to profoundly impact the mortgage market, streamlining processes and enhancing customer experiences is undoubtedly on the agenda as we move forwards. We are now beginning to see Virtual Property Tours using virtual and augmented reality technologies to enable prospective buyers to tour properties remotely.
Work is now accelerating to digitise the conveyancing process with Land Registry and Local Authority and Search data all capable of being accessed remotely and prepared at point of marketing. This has the potential to bring the five-month conveyancing process down to five weeks. A game changer for all in the industry and one we must embrace.
The mortgage application process is also becoming more digital. Online platforms allow borrowers to apply for mortgages, submit documents, and receive approvals faster than traditional methods. The adoption of machine learning will allow review from source documents without manual intervention.
However, caution should be exercised where a lender is encouraging an existing customer onto a new fixed rate using a‘ three click product transfer’ process. With more complex income, more products available and 40 year mortgages, personalised mortgage advice based on individual financial situations and preferences should be adopted on every occasion. With smart technology augmented by people, this has to be our future.
Related issues
The push for sustainable housing is both a challenge and an opportunity. Lenders offering green mortgages can capitalise on this trend, while borrowers benefit from energy-efficient homes and potential cost savings. But we currently only have two types of product. One which rewards those buying an energy efficient property – EPC A or B, where they get a lower interest rate or can borrow more due to the perceived lower running costs of the property. The second is the funding of retrofit activity to help enhance the overall UK housing portfolio. We will see significant development in the funding of green initiatives