First Time Buyer
Will more lenders pause mortgage applications amid ‘overwhelming demand’?
In the past few weeks Coventry, Cambridge, Saffron and Suffolk Building Societies have temporarily paused new business, citing high application volumes and pressured service levels.
Coventry Building Society has said it will reopen its new business range this Friday, however.
Following six successive Bank of England base rate hikes this has added hundreds of pounds to variable rate mortgages, while those on a fix face a big jump in monthly payments once they come to the end of their current deal.
And against this background, Brits are assessing their finances amid the cost-of-living crisis while others are looking to buy during peak house prices.
All-in-all, it has led to an overwhelming demand for mortgages and as such, some lenders have taken the decision to pause new business to clear backlogs.
‘Last resort to pause new business’
Paul Broadhead, head of mortgages and housing policy at the Building Societies Association (BSA) said purchase and remortgage demand had “gone through the roof” and many people were looking to re-fix due to base rate increases.
He added that completions were “stubbornly slow” as high demand affected the rest of the housing market supply chain. Mortgage brokers said smaller lenders tended to take on more complex cases that needed more manual underwriting and had fewer automated processes.
Further, in August, absences due to holiday mean there are fewer employees to actually manage increased case volumes at a time of base rate rises, inflation, volatility in swap rates and affordability changes, which have led to more market repricing, so lenders get overwhelmed with cases as others increase rates.
Broadhead reminded applicants that many lenders remained open for business, and it was “not a new phenomenon” to pause new business but this practice tended to be used as a “last resort”.
He said: “Consumers buying are experiencing an unforgiving market just now, so it is important and right lenders take any steps they deem necessary to keep their service levels as high as possible.”
‘Sensible, if a little drastic’
Scott Taylor-Barr, financial adviser at Carl Summers, explained lenders could control activity by raising rates, amending lending rules or closing doors.
He said lenders had tried the two former options, but this only led to “very limited and temporary reductions” in business volumes.
“It is a sensible, if a little drastic thing to do and doesn’t cause the market as a whole a huge issue, so long as it is only ever a limited number of lenders out of the game at any one time.”
Samantha Bickford, mortgage and equity release specialist at Clarity Wealth Management, agreed it was a “responsible business decision” to pause new mortgage lending to manage service levels.
She said it was “unrealistic” to wait for over a month for new business offers which could lead to issues like property fall throughs and increased pressure on brokers.
“Withdrawing from the market to catch up, give the lender’s sales and underwriting teams some breathing space and make brokers’ jobs that little bit less challenging is much welcomed. Yes, there may be a few less mortgage deals in the market available for clients, but hopefully the lenders still offering new business can keep up with the demand,” Bickford said.
According to Mortgage Brain’s lender service report, which surveys 50 lenders, residential applications’ average time to offer was 18 days.
However, mortgage borrowers shouldn’t be too concerned about the move, Chris Sykes, technical director at Private Finance, said.
He added: “I think the key message here is, it isn’t 2008, lenders still have billions to lend and aren’t running out of money any time soon. from the feedback I’ve received from many lenders.
“It is just many lenders are too busy and playing catch up and many don’t know how to price themselves at the moment due to how quickly things are moving.”
Indeed, for Jonathan Burridge, founding adviser at We Are Money, pausing mortgage business is a better step than dealing with the consequences of an influx of complaints.
He said: “Sudden withdrawal of products can damage a lender’s relationship with intermediaries and consumers can be impacted. However, if volume pressures are causing significant service issues to pipeline, this bold move should be respected.
“It is in nobody’s interest to cause long delays in a transaction, possibly threatening its success and causing detriment to the consumer. The increased pressures of complaints handling are mitigated, and the lender can focus on its day job and that is to be applauded.”
More lenders expected to follow suit
Sabrina Hall, mortgage and protection adviser at Kind Financial Services, said there were concerns other lenders may be forced to pause lending.
She explained: “The worry is this could have a snowball effect. Currently, lenders are increasing rates to stem the flow of business because they are too busy. What we sometimes see is when a lender does this, the next best lender follows suit because they don’t want to be overrun with business either when they are struggling.
“If this starts to be the case with lenders pausing lending, this could become a bigger issue if it starts to reduce options considerably.”
David Baird, director of mortgage finance at Aventur, agreed and said it was likely other smaller lenders might have to follow suit. “I think it is almost a herd mentality or domino effect, one goes and then the others can’t keep up as they are the only lender that offers those specialist products like for the self-employed.”
What are the alternatives?
According to Baird, lenders could potentially take a more tailored approach to ceasing lending, so stopping one area of business such as buy to let and then focusing on first-time buyers, as an example, could be a solution.
“All lenders have, for example, first-time buyer products. There’s no reason why they couldn’t turn the tap off to the other types of business and prioritise first-time buyers. We’re still going to help first-time buyers whereas other areas we’ve had to put to the side,” Baird said.
He noted smaller building societies had a “strong position” in their local areas, so maybe they could restrict lending to certain postcodes, which had been done in the past.