Much of last year’s frenzied transactional activity was fuelled by homebuyers looking to capitalise on the pandemic-induced stamp duty incentives and the historically low interest rates, which started to climb upwards in December.

Indeed, the market’s defiant buoyancy has shone through the industry’s leading house price indices over the last quarter. Recent data from Rightmove showed yet another new price record in March for the second consecutive month, as the average price of property coming to market jumped by 1.7%. According to the data, this is the largest increase at this time of year since March 2004.

Against the backdrop of the current highly competitive market conditions, macroeconomic and geopolitical uncertainty has clouded the current economic climate. Buyers and borrowers are contending with rocketing energy prices, soaring inflation and multiple interest rate increases, the latest of which has taken the base rate up to 0,75%. Admittedly, having been cut to a historic low of 0.1% in March 2020 at the outset of the pandemic, further hikes were inevitably set to become a more frequent occurrence, particularly in light of the building inflationary pressures. 

As lenders, we have a responsibility to acknowledge these headwinds and look to be proactive in providing assurance and certainty for our brokers and borrowers. This can be achieved in a number of ways, from the financial instruments we have at hand to help borrowers navigate the complexities of the market, to enhancing proactive communication in anticipation of clients’ needs.

Navigating the evolving landscape

As the UK moves into an environment of tighter monetary policy, financial institutions must undertake a delicate balancing act.

They must anticipate their client needs, ensure that fundamental services and products are available in the market and also be prepared for any number of future scenarios, given the rapidly evolving landscape.

Recent data from Moneyfacts showed lenders have pulled over 500 mortgage products from the market in February meaning there are now 518 fewer products to choose from, leaving 4,838 fixed and variable rate mortgages available at the start of March. It is likely that borrowers will also be met with a tightening of lending criteria, particularly in the mainstream mortgage market.

Against the uncertainty of the delicate economic environment, lenders’ ability to offer agility, flexibility and effective communication becomes ever-more important to help borrowers navigate the competitive market conditions and added financial pressures.

To shed light on mortgage customers’ sentiment towards their lenders and the wider mortgage market, Butterfield Mortgages Limited recently commissioned an independent study among 690 mortgage customers in the UK. The timely research highlighted the value mortgage customers place on having the support of an attentive lender, with two thirds (65%) believing it is key to succeeding in the competitive market.

The research also uncovered a desire among borrowers for more flexibility from lenders, with 59% saying mortgage providers rely too heavily on strict and rigid criteria when assessing an applicant’s eligibility. This ‘tick-box’ methodology favoured by mainstream lenders tends to exclude those with complicated financial structures or irregular sources of income, which can mean sound borrowers being overlooked.

In turn, brokers must play their part – the data found that the most common method of finding a mortgage lender is through broker advice, while 60% of homeowners felt working with intermediaries made the application processes easier. Fostering strong relationships with all stakeholders in the property market will more adequately position lenders to adequately meet the needs and demands of their clients.

Fixed-rate products

Lenders can also assuage concerns over the volatile environment by exploring how they can diversify their product offering to suit borrowers’ differing needs. 

For instance, with uncertainty mounting over the successive interest rate hikes, offering loans with fixed interest rates across the entire term will become an increasingly appealing option for borrowers at all levels.

The importance of offering products tailored to the needs of the market was also evidenced in BML’s recent study. When it comes to the key factors influencing borrowers’ choice of product, the terms of the loan and additional fees emerged as the most prominent – both were cited by 85% of customers as being important considerations. This was closely followed by the interest rates (84%), while the length of the fixed term and the ease of application were both selected as important by 80% of customers. 

For Butterfield Mortgages Limited, our focus at present is fixed on how we can best support borrowers, be that our current or prospective clients. For instance, we have been reaching out to our clients to explain that we are able to offer flexible, fixed-rate terms for up to ten years, giving them more security over potentially unpredictable years ahead.

Enhancing customer support

Favourable terms will go a long way to assuring customers of the long-term viability of their loan, but they must go alongside appropriate ongoing communication from the lender. Times of uncertainty will bring anxiety and caution, so lenders should seek to project clarity on both their present standing and ability to adjust to evolving circumstances.

The research highlighted that three-quarters of respondents (77%) considered the lender’s quality of customer service an important factor in selecting their mortgage, however, the findings revealed borrowers are seeking greater customer care. Nearly half (48%) of all mortgage customers felt lenders do not provide adequate support to borrowers once the loan has been delivered, indicating significant room for improvement across the sector.

I believe there is an opportunity for lenders to take a proactive stance toward customer engagement and the importance of regular communication once the loan has been delivered must not be overlooked.

Elsewhere, six in ten (59%) felt mortgage providers continue to rely too heavily on strict and rigid criteria when assessing eligibility for loans. This ‘tick-box’ methodology favoured by mainstream lenders tends to exclude those with complicated financial structures or irregular sources of income, which can mean sound borrowers being overlooked. From these figures, we can ascertain the value of lenders helping their customers through all stages of the loan process, particularly as borrowers’ lending profiles continue to evolve.

As the property market takes shape against the backdrop of rising interest and inflation, flexibility will be the watchword for lenders. The research suggests that homebuyers are increasingly willing to consider specialist lenders to find financial products which more accurately suit their needs, including products that offer longer-term insulation from adverse borrowing conditions. Even so, lenders must now assess how they are supporting their customers; while financial products can address challenges directly, a culture of caution from borrowers may take hold if greater communication and care is not taken to build productive relationships with all stakeholders. 

Alpa Bhakta is the CEO of Butterfield Mortgages Limited, which is a London-based prime property mortgage provider with a particular focus on the needs of UK and international HNWIs.  

Butterfield Mortgages is authorised and regulated by the Financial Conduct Authority (FRN:119274).  

Butterfield Mortgages Limited is part of the Butterfield Group and a subsidiary of The Bank of N.T. Butterfield & Son Limited.